1 The Baltic Course — Winter 2006 Contents www.baltkurs.com 54,4 35,9 20,1 Latvia* Estonia Lithuania 0 0 0 0 0 0 11 monthsin 2005, in mln t 52,8 34,2 18,9 11 monthsin 2004, in mln t PORTS: P. 12 FINANCES: P. 48 STATISTICS: P. 54 REAL ESTATE: P. 16 Lursoft Register of Enterprises of the Republic of Latvia Free Economic Zone "Vitebsk" NP Properties Paldiski Sadamate AS NORD LB Latvia RVR Reval Hotel Latvia Le Meridien Villon Resort Best Western Hotell Tallink Latvian Railway NIRA FONDS Baltic Travel Group Latvia Tours Medzabaki Dikli BKT Real Estate Development RMS LETA, BNS ITE GROUP PLC ITECA INFORMATION TECHNOLOGIES: P. 14 BANKS: P. 47 INNOVATIONS: P. 44 TRANSPORT: P. 8 OUR PARTNERS Baltic States Transport 8 Таriffs are both Changing and Increasing Ports 13 Reduced Tempo in the Baltic Ports Information Technologies 14 Demand for ITservice is Gathering Momentum Market Review Real Estate 16 Latvia is Following European Example 20 Lithuanian Real Estate Market's Got Bullish, although not due to Deals 22 Bullish New Construction Market in Estonia 24 Vadim Markov: "The Market is Presently Put before the Horse" 26 A View from London Business & Travel 34 Bright Future for Business Travel Market 38 Business and Entertainment Go HandinHand for our Hotel Guests Baltic States Labor Market 40 Urgently Wanted: Engineers and Craftsmen Innovations 44 AstroGenetics’s Role in Marketing Banks 47 Time and Resources We Saved — Our Valuable Acquisition European Union Finances 48 EU Integration in Equity and Securities: Towards a Single Capital Market CIS Investment Forum 50 Latvia and Belarus: Cooperation Prospects Figures & Facts 54 Statistics
LursoftRegister of Enterprises of the Republicof LatviaFree Economic Zone "Vitebsk"NP PropertiesPaldiski Sadamate ASNORD LB LatviaRVRReval Hotel LatviaLe Meridien Villon ResortBest Western Hotell Tallink
Latvian RailwayNIRA FONDSBaltic Travel GroupLatvia ToursMedzabakiDikliBKT Real Estate DevelopmentRMSLETA, BNSITE GROUP PLCITECA
INFORMATION TECHNOLOGIES: P. 14
BANKS: P. 47
INNOVATIONS: P. 44TRANSPORT: P. 8
OUR PARTNERS
Baltic StatesTransport8 Таriffs are both Changing and Increasing Ports13 Reduced Tempo in the Baltic PortsInformation Technologies14 Demand for IT�service is Gathering Momentum
Market ReviewReal Estate16 Latvia is Following European Example20 Lithuanian Real Estate Market's Got Bullish,
although not due to Deals 22 Bullish New Construction Market in Estonia24 Vadim Markov: "The Market is
Presently Put before the Horse" 26 A View from LondonBusiness & Travel 34 Bright Future for Business Travel Market38 Business and Entertainment Go Hand�in�Hand for
our Hotel Guests
Baltic StatesLabor Market40 Urgently Wanted: Engineers and Craftsmen Innovations44 Astro�Genetics’s Role in Marketing Banks47 Time and Resources We Saved —
Our Valuable Acquisition
European UnionFinances48 EU Integration in Equity and Securities:
Towards a Single Capital Market
CISInvestment Forum 50 Latvia and Belarus: Cooperation Prospects
Figures & Facts54 Statistics
3The Baltic Course — Winter 2006 Editor’s Note
Present issue’s featurearticles, as usually, clusteraround BC’s main themes, i.e.that of the politics and econ�omy in the Baltics, theEuropean Union and the rest ofthe Eastern Baltic Sea coun�tries’ area.
The BC’s Baltic Statessection reflects several perspec�tives the Baltic sub�region isfacing with. These are suchissues and problems as, first ofall, labour market structures and workers’ immigration. With theemerging evidence of the problem both the old and the new EUmember states unfortunately are dealing with the problem in a dif�ferent way. There are growing intentions that both EU memberstates and governing EU institutions would try to solve thisintense problem. Anyway, efforts to re�draft the EU ServiceDirective is a good start for the Austrian half�a�year EU Presidencyand active role of the EU Parliament.
Another important for the Baltic States and their neighbors’issue is transportation problem: it is well known that the threeBaltic countries’ economies greatly depend on transit, mostly thatof goods. Hence, most urgent is railway transport where tariffs’ pol�icy in the Baltic States and adjacent countries can serve as an indi�cation of progress. So far such policy lacks coherence and stability,both from Latvian side and her neighbors.
Property and real estate issues are the background foranother BC analysis in the Baltic States. Although civilized prop�erty market dates back to beginning of 1990s, there are definitepositive (as well as negative) sides in the three republics.
Quite remarkable are Latvian relationships with her South�Eastern neighbor, Byelorussia. Bilateral Byelorussian�Latviancooperation forum is a good indication which quite remarkablyunderlines a thesis that sound politics with reasonable economicties can make miracles. One of the examples is the RVR’s initiativeto design and manufacture a new diesel�type railway train for theneighboring country’s transport network.
Main theme in the European Union’s section is the thirdarticle in our series of articles on the Union’s financial integra�tion policy. This time we have reviewed the EU securities andstock exchange markets as well as financial integration effortsin this field.
In line with the major themes in the European development,an observation of major events in economic and political situationin the region is presented in BC’s section “News and Views”.
Finally, I have to attract readers’ attention to our regularsection of the Baltic States’ recent major economic developmentoutlook and statistics.
Eugene Eteris, BC’s International Editor
www.baltkurs.com
Published quarterly since 1996Winter 2006 (No.20)
Our readers are in Latvia, Lithuania, Estonia, the CIS countries,Western, Central and North Europe, the US, Canada,
Latin America, Israel, etc.
The Baltic Course was registered in the Republic of Latvia Company Register on March 1, 1996.
Editorial Board:Stanislav Buka – Baltic Russian Institute, Chairman of the Senate,Dr. Oec., LatviaRaivo Vare – Eesti Raudtee, Development Director , EstoniaJanis Domburs – independent journalist, LatviaBo Krag – Svenska Handelsbanken, Vice�president, Balticfinances’ expert, SwedenYevgeny Kostenko – Minsk Free Economic Zone, deputy chiefexecutive, candidate of technical sciences, BelarusBronislavs Lubis – Lithuanian Industrialist Confederation,president, Kazbalt association president, LithuaniaNikolai Mezhevich – University of St.Petersburg, Professor;Center of Transborder Studies, Director, Dr. Oec., RussiaOlga Pavuk – Editor�in�Chief for magazines Балтийский Курсand The Baltic Course, Dr. Oec., LatviaInna Rogatchi – Rogatchi Productions & Communications, Vice�president, FinlandOleg Soskin – Institute for Society Transformation, Director, Dr.Oec., UkraineDmitry Trenin – Moscow Carnegie Center, Deputy director, RussiaEugene Eteris – BC international Editor, European IntegrationInstitute, Doctor of Law, Denmark
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RESTRUCTURING OF LATVIAN RAILWAY IS UNDERWAY
State-owned Latvian RailwayCompany’s Latvijas dzelzcels (LDz) threenew subsidiaries are expected to start inde-pendent operations on July 3, 2006. LDzInfrastruktura headed by production direc-tor Stanislav Baiko will be responsible forrailway infrastructure. LDz Cargo devotedto cargo transport will be run by FreightAdministration director Eriks Smuksts,and LDz Ritosa Sastava Serviss organizedfor servicing rolling stock will be managedby Hanza Shipping Board’s memberAivars Muravskis.
LDz Ritosa Sastava Serviss will consistof locomotive and railcar repair shops androlling stock facilities’ administration. Theexisting LDz subsidiary, Pasazieru Vilciens,will continue carrying passengers on domes-tic routes; other existing subsidiaries will goon with their regular business, e.g.Starptautiskie Pasazieru Parvadajumi withinternational passenger service, VRCZasulauks with railcar repairs and DzelzcelaApsardze with all kind security issues.
The idea for LDz restructuring wasvoiced by Latvian Transport Minister AinarsSlesers at the beginning of 2005. He madethe proposal in order to avoid cross-subsidiz-ing of passenger services from freight trans-port service, as well as to separate railwayinfrastructure from “main activity” as isrequired by the EU directives. A number ofexperts could relate the restructuring withthe initial steps to “covered” state railwayprivatization although the Minister repeat-edly denounced the allegations.
The Baltic Course — Winter 20064 News & Views www.baltkurs.com
DZINTARA SPALVA 2005 WINNERS IN LATVIA
BC’s international editor, EugeneEteris has been awarded an “Amber Stilo”Diploma (Dzintara spalva 2005) in a com-petition organized by Latvian JournalistUnion and Russian Federation Embassy inLatvia in economics’ journalism nomina-tion for an article “Russia and the EUNeed Each Other” in BC nr. 17.
Among the winners in various othercategories there were reporters, mass-media journalists, TV and radio correspon-dents covering various political, culturaland economic aspects in Latvian-Russianrelationships: Margarita Sprancmane fromTelegraph daily, Gregory Zubarev fromMix FM Radio Channel, ChristinaMoiseeva from (TV 5), Juris Paiders(NRA), Natalija Ketnere from regionalOgre Week, Svetlana Gartovanova fromChas daily, Olga Proskurova from LTV-7,and Vija Bajnerte from Majas viesis, aswell as a publishing house Rigas Laiks.
During the awarding ceremony heldin the Union’s mansion in Riga’s down-town, Latvian Foreign Ministry’s represen-tative Janis Mazeiks heading Ministry’sRussian Section has noted that journalists,rather than state bodies, can often make abetter impetus to bilateral relations.
Russian Ambassador in Latvia,Viktor Kalyuzhny underlined that Em-bassy’s staff has not in any way influencedthe nomination results; the winners havebeen chosen by a competent jury com-posed of prominent Latvian journalistsand editors. The ambassador expressedgratitude to all journalists for creating aclimate of confidence between the twocountries, which will further invigorate afavorable political dialogue.
LATVIA AND UKRAINE STEP UP RELATIONSHIPS
Latvian Prime Minister AigarsKalvitis in late November met withUkrainian President Viktor Yushschenko,country’s Prime Minister and its ForeignMinister in Kiev. They discussed develop-ment of bilateral relation and organizationof a special task force to step up businesscooperation in various sectors, includingtransit of passengers and goods.
KAUNAS FEZ HAS OPENED IN LITHUANIA
It took ten years to launch Kau-nas Free Economic Zone (FEZ) inLithuania. The official inaugurationceremony took place in mid-Decem-ber with participation of representati-ves from Kaunas region, the city coun-cil, as well from the Lithuanian parlia-ment. A project for multi-modalterminals’ integration in Kaunas re-gion was presented at an opening ce-remony, and a debate on “BalancedTerminals’ Development among Kau-nas Airport, High-Speed City Trans-port section, European and RussianRailway Tracks” took place.
Lithuanian Parliament passedthe law on Kaunas FEZ in October1996. It was planned that the FEZ witharea of 1,000 hectares would becomethe largest in the Baltics but then pro-blems occurred with acquiring landfrom private owners. In 2004 the parli-ament amended the law and reducedKaunas FEZ territory to 534 hectares.Infrastructure and utility lines facilit-ies’ construction on the site began inNovember that year. The founder ofKaunas FEZ, Belgian company AOINV, has already signed agreementswith several companies concerning le-asing out land, and the tenants plan tolaunch their operations in sum-mer 2006.
STUDYING COMPETITIVE ADVANTAGES Production efficiency among the
companies in the Baltic States is muchlower than in the Central Europeanstates, on average, according to a com-petitive ability’s study of theEuropean companies carried out byKPMG. As to practical examples ofefficiency in the Baltics, Lithuaniancompanies have shown the biggestgrowth rates, i.e. at 19% throughout2005. Latvia is at the second placewith 14% growth and Estonia ranksthird with 4%.
Baltijos biodyzelino centras, a com-pany building 80 million litas’ worth bio-diesel and glycerin plant in Sirvintos regionin Lithuania, has signed an agreement for100% distribution of future output. Baltijosbiodyzelino centras’ director-generalJuozas Pazusys said that they would beexporting their products to WesternEurope and only a small fraction would besold in Lithuania. It is planned to produceannually up to 40,000 tons of bio-diesel,up to 5,000 tons of glycerin and about60,000 tons of rape cake used as animalfeed. The plant would need 86-90 thou-sand tons of raw materials a year for thispurpose, all to be bought in Lithuania. Thenew plant would create up to 1,200 jobs.
ESTONIA’S READY TO JOIN NUCLEAR PLANT PROJECT
If Lithuania decides to build anew nuclear power plant Estonia willbe ready to take part in the project. Thechances of “co-operative new nuclearpower plant construction” have beendiscussed by Lithuanian parliamentspeaker Arturas Paulauskas and Esto-nian President Arnold Ruutel duringtheir meeting in Tallinn in late Novem-ber. The discussions did not involve anydiscussions on specific contributionthat Estonia could make if the twocountries decided to build a nuclearpower plant together.
Therefore, while speaking aboutjoint energy projects, President Ruutelexpressed interest in the constructionof a nuclear power plant in Lithuania,Mr. Paulauskas told the press after themeeting.
LITHUANIA ADOPTS LAW ONMAZEIKIU NAFTA SALE
Lithuanian Parliament has pas-sed a set of legislative acts enablingthe government to buy from Russia’sYUKOS shares in Mazeikiu nafta oilconcern and to sell them to a newowner, borrowing up to 3 billion litas(EUR 0.87 b) for that purpose. TheConstitutional Court in December ru-led that provisions under the lawabout reorganization of Butinges naf-
ta, Mazeikiu nafta and Naftotiekiscompanies were contradicting to theConstitution. The agreements aboutinvestments signed by YUKOS andLithuanian government in 2002 stipu-lated that any disputes between theparties should be settled according tothe British law. In this regard, Lithua-nian government decided to hire Bri-tish lawyers for solving the problemsrelated to sale of the oil company sha-res held by YUKOS. At present YU-KOS owns 57.3% in Mazeikiu nafta,and 40.6% shares belong to Lithuani-an government.
MAJOR INVESTMENT INTO LITHUANIA’S KLAIPEDA PORT
Krovinu terminalas (Cargo Termi-nal) company which belongs to Klasco,the largest stevedore in Lithuania’s Kla-ipeda port, has invested 110 million litasinto construction of a new oil and che-mical terminal. It is the largest privateinvestment in the Klaipeda port, said thepress release. Construction of the termi-nal, which will have the capacity of2 million tons a year, began in summer2004. The cargo terminal will have pierlength of 250 meters and water depth of14 meters. The pier will be able to recei-ve vessels with deadweight of 60-65 thousand tons. Klasco holds 51% inKrovinu terminalas, and remaining 49%belongs to individuals.
MAJOR MARKET PLAYER The world’s largest insurance com-
pany American International Group(AIG) is planning to start long-term busi-ness activities in Latvia. Thus, AIG Lifeintends to become one of the leadingplayers on the Latvian insurance market.The American insurance company hasrepresentation offices also in Lithuaniaand Estonia.
BANK CASHER SENTENCED TO 7 YEARS IN JAIL
Riga Regional Court found IndulisSturans, former accountant at SEB Lat-vijas Unibanka, guilty of over 1.5 millionlats of the bank’s funds misappropriationand sentenced him to 7 years in jail withconfiscation of his property. Sturans wascharged with fraud, misappropriationand large-scale money laundering. Thebank’s accountant had been misappro-priating the bank’s funds for two years,legalizing criminal proceeds through for-eign exchange transactions. He wasdetained on 5 September 1998.
His accomplice Talis Kenins wassentenced to 6 years in prison, withproperty confiscation. Two other co-defendants, Mikhail Lyubinsky andVladimir Luzganov, were centenced to4 years in jail each with confiscation ofproperty. Another criminal partner, UgisLapins, was sentenced to one year and18 days in jail and released in the courtroom as this was exactly the period hehad already spent in pre-trial investiga-tion. Two more defendants in the samecriminal case, Ilze Dobrova and AigarsKreigers, got suspended sentences buttheir property will be confiscated any-way. Gvido Petersons, also a suspect inthe fraudulent activities againstSEB Latvijas Unibanka, is still at large.
VILNIUS CHOSEN AS EUROPEANCAPITAL OF CULTURE 2009
The EU Education, Youth andCulture Council at a meeting inBrussels has decided to nominatedLithuanian capital Vilnius andAustrian city Lenz as 2009 EuropeanCulture Capitals. That year Lithuaniawill celebrate a millennial anniversaryof its name first appearing in written
records. A number of important cul-ture events will be connected with thecelebration dates, including the com-pletion of the reconstruction of thePalace of the Rulers of the GrandDuchy of Lithuania.
LITHUANIAN SCIENTISTS INVENTNEW OLED’S TECHNOLOGY
Lithuanian scientists have discovereda chemical substance that will be used in pro-duction of electro-luminescent OLED dis-plays (Organic Light Emitting Diode) for TVsets, computers and mobile telephones.“Thepotentials of the new OLED technologyexcels that of liquid crystal and plasma tech-nologies,” Arturas Zukauskas, director of theInstitute of Materials Science and AppliedResearch, in Vilnius University, told ELTA.
A consortium Orgelita, was organ-ized for research purposes. It consists ofthree companies, i.e. Vilniaus Vingis,Ekranas and Tikslioji sintezе, VilniusUniversity, Institute of Physics and KaunasTechnology University.
LITHUANIA HAS ANNOUNCED A TENDER FOR WIND POWER PLANTS
Lithuanian utility operator Lietuvosenergija has announced a tender for ener-gy companies wishing acquire permissionfor building a wind power plant in Zone 5linking it to the 110 kW power transmis-sion line between two cities — Klaipedaand Retavas.
The winner of the tender will onlyget the right to apply to the Economics Mi-nistry and seek in the statutory procedurethe permission for expanding the powerproduction capacity.
Envelopes with the bids submittedin the tender are opened on January 27,2006, and the tender commission will na-me the winners on February 13. The ter-ritory for development of wind powerplants in Lithuania has been divided in-to six zones, and a separate tender has tobe held for each zone. The wind powerplants will be built in order to fulfillLithuania’s EU commitment to increasepower generation from renewable res-ources to 7% by 2010.
LITHUANIAN PIZZA CHAIN TO EXPAND TO BELARUS
Tadas Karosas, the owner of thelargest Lithuanian pizza chain Cilija thatalso operates in Latvia, plans to expandhis business to Belarus. Cilija owns about30 pizzerias in Lithuania and 8 pizzeriasin Latvia. The company’s consolidatedturnover in 2004 was EUR 19.1 million,rising 53.6% from 2003, and Latvian sa-les increased to 10.2 million litas from5.8 million litas before.
RECORD�LARGE COCAINE SEIZURE IN TALLINN
Central Criminal Police officers in Oc-tober last year seized over 40 kilograms ofpure cocaine in the Estonian capital Tallinnand detained an Israeli national who wasbehind all the drug trafficking arrangements.This is the largest cocaine seizure ever not on-ly in Estonia, but also in the Nordic countries,reported Eesti Ekspress. Its value is estimatedat about 100 million kroons.The Central Cri-minal Police does not rule out that such largeamount of drugs had been brought to Estoniafor sale to local criminal groups. A prosecu-tion representative said that a drug crime ofthis scope could even fetch a life sentence incase of a guilty verdict.
ITALIANS’ INTEREST IN LITHUANIAN CHEESE
The largest Lithuanian dairy producerRokiskio suris has signed an agreement withanother Italian company supplying cheese tolarge retail networks. “Italy’s representativesfrom Anguili visited Rokiskio suris and veryhighly assessed our new technology for matu-ring cheese. Already during this visit Italiancompany ordered 154 tons of improved che-ese “Montecampo” which is in high demandin southern Italy,”said Rokiskio suris’ produc-tion director Dalius Trumpa. Lithuaniancompany exports over 65% of its output, mo-stly to the EU and Russia.
ESTONIAN FARMERS’ REVENUES UP 33%According to preliminary
Statistics Department figures revenuesof Estonian agricultural producers in2004 have increased by 33% from theyear before. Lower production costs,higher sales prices and increased agri-cultural benefits all contributed togrowth of revenues. Agricultural prod-uct output was 7.4 billion kroons, ofwhich crop and livestock productioncontributed to 89% (88% in 2003); agri-cultural services, processing of agricul-tural products and other associatednon-agricultural products accountedfor 11% (12% in 2003) .
LONG�AWAITED VISASLatvian embassy in the Kazakh capital
Astana on 15 December 2005, started issuingvisas for tourists and businessmen headed forLatvia, Latvian Foreign Ministry press centerreported.The ministry said that it would facil-itate closer economic,trade,culture and touristcooperation between Latvia and Kazakhstan.
THREE DAYS’ FASHION WEEK In December 2005 Latvian capital
Riga hosted the 4th Baltic Fashion Week(BFW) in which Baltic designers presentedtheir pret-a-porter collections. The patro-ness of the show was Ilze Aksenoka, wife ofthe Riga’s mayor. The participants for thefashion show were chosen by BWF’s projectmanager Aivars Helds. Of the 17 partici-pants, one was from Russia, one fromLithuania, two from Estonia and the remaining designers were all from Latvia. Mr. Heldsthinks that at least four of the 17 collections are already ready to be put on the market whichis not a bad rate for beginning fashion designers.The guest of honor at the BFW was the dis-tinguished French fashion critic Godfrey Deeny, the founder of the Internet agencywww.fashionwiredaily.com. The BWF organizers hope that Mr. Deeny would assist in open-ing for local designers the doors into European fashion industry. Especially since the promi-nent guest reflected very positively about fashion show in Riga and promised that he wouldcertainly attend the next annual event.
The Baltic Course — Winter 20066 News & Views www.baltkurs.com
The Baltic Course — Winter 2006
NP Business Park Jelgava is currently the largest industrialpark in Latvia with a total area of 23 hectares and available for rentarea of 111 000 sq. meters.
The newly created industrial park occupies the territory oflate automotive factory RAF (Rigas Automobile Factory), whichduring the decades of Soviet era was one of the most prominentindustrial sites of Latvian economy.
Elita Moiseja, NP Properties’ managing director says thatJelgava has always been considered a town with highly developedindustry and infrastructure. During the Soviet times, it has a reputa-tion of an automotive metropolis. Pleasant environment for indus-trial development, infrastructure and strategic location on the high-way to Western Europe and just 42 km away from the Latvian cap-ital can be ideal for small and medium production companiesworking in different areas.
In spite a massive reconstruction works in the industrial park,already now spacious facilities are available for rent and ready toadapt to the clients’ needs.The industrial park is planned to becomethe most modern of this kind in the Baltics. From metal works toinformation technologies - — the industrial park will be suitable fortenants with most varied needs.
NP Business Park Jelgava is not our only park! NP Propertiesowns eight industrial parks in different Latvian towns — Riga,Jelgava, Ventspils, Salaspils, Rezekne, Daugavpils and Olaine. Allthese facilities are located in strategically convenient places with ahighly developed infrastructure, near the highways, railroads, air-ports or sea routes” says E.Moiseja. •
NP Properties, one of the major developers of indus�trial parks in the Baltics, has started a full�scale reconstruc�tion leading to appearance of NP Business Park Jelgava.Currently the first stage of the reconstruction is finished,and production, warehouse and office spaces are alreadyavailable to the clients in Jelgava — one of the industriallydeveloped towns in Latvia.
NP Business Park Jelgava: a Former Automotive Factory Turns
into the Largest Industrial Park in Latvia
The Baltic Course — Winter 2006
After the meeting with Mr. Levitinin spring 2005 Latvian transport ministermade the following press statement:“Latvian transit business has finally seenthe light at the end of the tunnel concern-ing the problem of discriminatory railwaytariffs. This mentioned Russian decisionwould increase Latvian ports’ competi-tiveness in the region and create necessaryconditions for growth in the amounts ofcargos and qualitative changes in thefreight structure”.
During the meetings transport minis-ters of both countries have discussed issuesof bilateral cooperation and the need forcloser cooperation in the transport indus-try, in particular in view of the opportuni-ties opened by Latvia’s accession to theEU. (It is well known that Russian railwayfreight tariff policy has direct influence oncargo turnover at Latvian ports as the lat-ter have been handling less crude oil andoil products, ferrous metals and other“high-value” cargos because of highRussian’s tariffs).
More than six months have passedsince transport ministers’ meeting; duringthat time administration and leaders inLatvian state-owned railway company
Latvijas dzelzcels (LDz) have beenreplaced. The new LDz’s board of directorsin early December voiced support for anaverage freight tariff increase by 17.5% in2006. Railway company (LDz) explainedthat final tariff’s level would depend oncargo types to be carried, transportation dis-tance and its direction as well as the worlddiesel fuel market price used for transporta-tion; therefore the tariffs could varybetween 17% and 22%.
Ugis Magonis, LDz’s new boardchairman already in August 2005 clarifiedthat tariff’s increase was based on thenecessity to increase wages to company’smedium and low-level staff. “We have hadno alternative. Otherwise the staff will go toIreland to work but we need them here”, hesaid. Tariffs had to be increased, said Mr. U.Magonis, also due to high inflation andgrowing production costs; money was alsoneeded for improving railway infrastructureand upgrading the rolling stock.
The decision described as a com-promise move was not an easy one tomake. Thus, members of Latvian TransitBusiness Association (LTBA) had eightofficial meetings with LDz’s representa-tives. LTBA executive director Girts
Verners has reminded that in an attemptto reach an agreement several meetingswere held to make necessary calculations,analysis, to develop tariff’s price-formingmethods, including other economicassessments. Despite certain members’objections LTBA has supported finallytariff increase... (It has to be noted thatLDz and transit companies were unableto agree on a compromise for freight tar-iffs for quite a long time. E.g. in lateSeptember the sides involved agreed tomake tariff’s decision within a month butat the beginning of last November LTBA’sgeneral meeting adopted a resolution notto approve any new tariffs and to termi-nate negotiations).
DELIVERY RATESLDz’s previous contractual delivery
rates will remain unchanged this year butinflation charges will grow fromEUR 1.047 to EUR 1.075 per ton, the tar-iff’s variable part will increase fromEUR 0.32 to EUR 0.472 per ton, andexcise duty will amount to EUR 0.274 perton, compared to EUR 0.175 per tonbefore. Businessmen will be chargedEUR 0.173 per ton in 2006. Thus LDz will
8
Baltic StatesTransport www.baltkurs.com
ТТааrriiffffss aarree bbootthh CChhaannggiinngg aanndd IInnccrreeaassiinngg By Ivars Sturins Latvia
Russian Transport Minister Igor Levitin in spring 2005 during meetings with Latvian Transport Minister Ainars Slesers inMoscow said that by 2009 Russia might gradually reduce high railway tariffs for cargos aimed for the Baltic ports. It was thelong�awaited�for initiative. But recently quite different, non�populist, decision was made in Riga to increase railway freight tar�iffs on Latvian territory in 2006. Experts think that such move may lead to loss of clients and redistribution of cargo flows.
receive almost EUR 0.5 more per ton offreight transportation than it was in 2005.
If, for example, we multiply theamount of cargo carried in 2005, which equalsto 50 million tons, by the new rate, then therailway company would earn additionalEUR 25 million on this tariff increase alone...
According to LTBA’s leader, nodecline in cargo flow was however expecteddue to tariff’s increase.“It will be rather dif-ficult in the beginning to explain to cargoowners that they will have to pay extra butas time goes on, we hope, the cargo flow willstabilize and will increase after all”, said
Mr. Verners. Latvian Transport MinisterAinars Slesers thinks that LDz would beable in six years to double its cargo turnoverto 100 million tons annually.
WILL CARGOS GO TO NEIGHBOR STATES?
There are somehow different viewson LDz’s future in freight transportation.Under conditions of tough competition alltransport tariffs’ increase might lead tocargo flows’ redistribution and, as a result,LDz could run the risk of loosing large partof its clientele.
According some other views, trans-portation routes may change radically inthe light of latest political turmoil. Manystill remember situation when veterinarycargos from Riga have been quicklydiverted to Klaipeda port only becauseRiga port did not have the appropriate san-itary infrastructure.
LDz’s Freight Administration direc-tor Eriks Smuksts thinks that the situationis under control now. “Lithuanians in thelast fall raised their tariffs by 18%! By theway, so far in general our rates are lowerthan that of our neighbors... And if somecargos may disappear from our routs
because of tariff increase there will be defi-nitely some other cargos coming instead”,said Mr. Smuksts. He added in conclusionthat tariff’s increase was calculated in such amanner as to prevent negative effect on thecompany’s cargo turnover.
Latvian ports’ representatives weregenerally optimistic in their comments onthe situation. Ivo Kolins, marketing andinvestment department manager in LiepajaSpecial Economic Zone in south-westernLatvia said that railway freight tariffs’increase was insignificant.“Let us just get tobusiness; and it is transport forwarders’obligation to find the best routes for ourshipments”, he said. Riga port representa-tives also do not expect the cargo flowstructures to change in the new situation.“There is another question, though, i.e.
increases in transport rates could possiblypush up product prices on the marketbecause consequently all the charges forport services will also increase”, said Rigaport spokesman Karlis Leiskalns.
CARGO CARRIERS AND THEIR CLIENTSMost of Latvian forwarders’ response
to the news was quite negative as for someof them tariff increase would lead not to17.5% as it was announced by LDz but infact up to 30%! Moreover, some details haveappeared, e.g. it turned out that companieswhich pay all taxes would be in a disadvan-tage position compared to non-residentbusinessmen because they pay for deliveriesin euros while Latvian companies make pay-ments in lats and would incur notable lossesthrough currency exchange.
When forwarders’ opinion was asked,they wished to remain anonymous for under-standable reasons, they pointed out to thefact that their clients in Russia were “in astate of shock” when they heard about new
tariffs. It is no wonder, as for several monthsthe partners were being prepared for 17-22%growth of rates but actually they increased asmuch as 30%. Therefore the idea circulatedby a number of forwarders to transport car-gos by railway from Russia to Estoniathrough Latvia has been neglected too.
Thus, Latvian transport companies donot see their future in bright colors — therewill be fewer cargos and they will be re-routed after all. Actually, the degradingprocess has been going on in Latvia sincemid-1990s when transit of crude oil startedto flow some other directions...
WHAT’S GOING ON IN RUSSIAAfter the fourth meeting of the
Russian-Lithuanian intergovernmentalcommission on trade, economic, scientificand cultural cooperation held in Lithuania’sPalanga resort in November 2005 headedby Commission’s co-chairmen, RussianTransport Minister Igor Levitin andLithuanian Foreign Minister Antanas
Valionis it was reported that Russia hadbegun preparations for the process of “lev-eling out” railway tariffs for freight trans-portation in the direction of the Balticstates. The process is expected to be com-pleted by 2009.
The “discriminatory” tariff hasbecome a serious problem for Baltic busi-nessmen. For example, railway tariff ontransportation of diesel fuel to Latviathrough Russian territory is three timeshigher than domestic shipment tariff, andtariffs on metal transportation are two timeshigher. But in view of joining the WorldTrade Organization Russia would have tolevel out the tariffs for transit and domesticcargos. And the Baltic States can’t wait tosee this decision to be adopted. •
9The Baltic Course — Winter 2006 Transport www.baltkurs.com
AINARS SLESERS: LDz would be able in six years to double its cargo turnover to 100 million tons annually.
UGIS MAGONIS: We have had no alternative.Otherwise the staff will go to Ireland to workbut we need them here.
ERIKS SMUKSTS: Lithuanians in the last fallraised their tariffs by 18%! By the way, so far in general our rates are lower than that of our neighbors...
The Baltic Course — Winter 2006
A NEW PATH IN THE PLANT’S HISTORY Everybody at RVR says that the
year 2001 was a “Renaissance-year” forthe plant: due to plant’s staff uniqueexperience and sophisticated industrialequipment it has become possible tooverturn from railway-car-repair func-tions to car-building and construction.Through a short period of time old com-mercial contacts have been restored andnew partnerships established. Thanks toenormous experience in building elec-tro- and diesel-railway cars for variouscountries in the world, RVR Companycan offer consumers’ unique production
models both in repairing and car-build-ing sectors.
People at RVR make words intoactions, e.g. from January 2001 toJanuary 2005 the following achievementshave been reached: 38 newly built rail-way cars, 55 cars repaired and renewed,31 electric- and diesel-cars renewed,10 locomotives modernized, 8 car-framesrepaired, 322 flatcars repaired, 2 timber-transporters newly built, 37 street-carsrenovated and 1300 car-platformsrepaired. The deals have been made withrailway companies both in Latvia andtwo other Baltic states (Lithuania andEstonia), as well as with Russia, Georgia,Byelorussia, and Finland.
COOPERATION AND PLANS RVR is an active participant in
Latvian transportation system’s develop-ment and implementation; it has acquiredfinancial assistance from the EU StructuralFunds, as well.
As RVR’s Board of Directors’Chairman Mr. Lazar Raizberg once men-tioned, the company’s main priorities areoriented towards new railway-car genera-
tion’s construction. Thus, recently a new six-cars-diesel-train (DR1B-type) was accom-plished following Byelorussian Railway’sorder (by this time another six-cars-diesel-train was supplied to Byelorussia).Cooperation between two countries has fol-lowed the Cooperation Program for Diesel-type Railway Car Development whichenvisaged design, construction and certifi-cation of all new diesel trains built forByelorussia.
A new diesel-engine motor (up to1 thousand Watt capacity) is being devel-oped together with Russian IndustrialCompany Zvezda (the Star) inSt. Petersburg. After exploration period inByelorussia, the RVR Company will begindiesel-trains’ manufacturing equipped withthe mentioned engine motors; hydro-trans-mitters for the new train will be suppliedby Austrian Company VOITH.
RVR’s design department, which in2006 is celebrating its 60th anniversary, isplanning further modernization of the “DR3-type” diesel-train equipped withEuropean power drive motors system.
PERSPECTIVES AND DEVELOPMENT RVR successful development is based
on partnership relationships and import ofresources from Russia, as well as on theEuropean Union’s information and technol-ogy integration schemes.
Latvia’s Transport MinisterMr. Ainars Slesers at a diesel-train presen-tation to Byelorussian side has acknowl-edged that such cooperation has providedthe RVR Company with a solid backgroundfor a future perspective development. Hesaid: “This diesel-train construction is ofextreme importance for our company, forour country’s economy and for ourRepublic’s image”.
A strategy has been developed atRVR for penetration into the Baltic States’markets and that of Eastern Europeancountries. In 2004 RVR has acquired ISO-2000-9001 certificate, the fact that providesadditional awareness that the plant’s pro-duction is actually at the level of leadingworld producers. Customers around theworld can be quite aware of the fact thatRVR is capable of producing modern elec-tric- and diesel-railway cars and trains, aswell as trams with low-floor and repairingmodern railway-cars. •
10 Transport www.baltkurs.com
Riga Carriage Building Plant is Heading for Baltics and Around
Although it was established precisely 110 years ago, Riga Carriage BuildingPlant (RVR in Latvian abbreviation) has become presently a modern and adequatelyadjusting to global requirements' company aimed to design and construct contem�porary railway transport. The plant is generally regarded as a leading machine�building industry undertaking in the Baltic countries.
According to RVR's perspective develop�ment plan for 2005�2010, its manufac�turing capacity, in value terms, willincrease to 100 mln USD, and the num�ber of workers to about 1500. TheCompany is already cooperating withtransport authorities in the followingcountries (alongside various firms andcompanies in Latvia): Russia, Ukraine,Byelorussia, Georgia, Lithuania, Estonia,Bulgaria, Finland, Kazakhstan, Croatia,Macedonia, Serbia and Cernogorija.
10 NOVEMBER 2005, RIGA: RVR's Governing Council Chairman Mr. Valerij Igaunis (first from left),Latvia's Transport Minister Mr. Ainars Slesers (third from left), Republic of Belarus' EconomyMinister Mr. Nikolaj Zajchenko (forth from left) and RVR's Board of Directors' Chairman Mr. Lazar Raizberg (fifth from left) at diesel�train demonstration show for Belarusian railway.
BC: Is Latvian Railway satisfiedwith last year's performance?
UM: In general, the management ofLatvian Railway is satisfied with the compa-ny's results in 2005. During the last year Lat-vian Railway has transported a record cargovolume of about 54.9 mln. tons, which is by7 per cent more than in 2004. If we compareLatvian Railway's performance with that oftwo neighboring Baltic States, we have thelargest increase in cargo volumes. Main car-gos transported are those of crude oil and oilproducts. Transit of bituminous coal throughLatvian ports, e.g. Ventspils and Riga, hasgrown rapidly during recent years. The larg-est Latvian Railway cooperation partnersare Russian Railway (47%) and BelarusRailway (34%). Looking at future prospects,I would like to mention changes in Russiantariff policy, according to which, startingfrom January 2006 unified freight rates forcargo transport through border crossingpoints (export) and to Russian ports (in-land) have been introduced. Presently theserates are 12.8 per cent and precisely to thislevel tariffs for cargos to Russian ports havebeen increased. This fact gives ground foroptimistic forecasts in future, because thereis a chance to regain lost advantages and tomake it possible to increase volumes of car-go transported from Russia.
BC: Last year Latvian Railwaystarted structural reforms, what are themain stages of the restructuring andwhen do you expect to complete it?
UM: Railway restructuring wasstarted according to the Decree of theCabinet of Ministers adopted on May 10,2005. At the end of the last year we estab-lished three new subsidiaries, i.e. LatvianRailway Infrastructure Ltd, Latvian Rail-way CARGO Ltd, and Latvian RailwayRolling Stock Service Ltd. Establishmentof these three new subsidiaries has turnedthe company into a holding. At present theLatvian Railway holding consists of seveninter-dependent subsidiaries. The func-tions performed by the subsidiary enter-prises are clearly divided, being structuredin large operational blocks, i.e. mainte-nance and economic management of rail-way infrastructure, cargo transportation,passenger carriage and rolling-stock serv-ice. The main holding company will pro-vide for management and centralized ad-
ministration services, coordinate develop-ment strategy of subsidiaries, protect theinterests of the holding in relations withthe state, municipal and public authoritiesand carry out other functions.
BC: Would the completion of re-structuring lead to privatization of subsidi-aries of the holding?
UM: I am sure that the railway infra-structure has to remain the state property.Also, I do not think that in the nearest fu-ture it will be possible to privatize the car-go transportation business. Although at-tracting of private capital would be evenpreferable.
BC: How does Latvian Railway useEuropean structural funds?
UM: First EU structural fund resour-ces became available in 1998 through theEuropean Union's PHARE and ISPA pro-grams as assistance to the EU candidatecountries. Latvian Railway was one of thefirst enterprises in Latvia that started usingthis opportunity actively. During theseyears more than 150 mln euros were invest-ed into railway infrastructure, of whichabout 80 mln euros came from the EUfunds. Among the projects implementedduring recent years I would like to mentionthe new freight train reception yard at theRezekne-2 railway station, which is to beput into operation this spring.
BC: What can you say about thecontainer train project Baltika-Tranzit de-velopment?
UM: The Container Train Baltika-Tranzit project is developing successfully.It can be considered in its way to be an in-ter-modal bridge between the Baltic Statesand the Central Asia. The project startedin 2003 and over about 2 years greatprogress has been achieved. If in 2003 dur-ing the first eight months 31 train-tripswere carried out on 604 platforms andcars, with 1297 container units, then in2004 the number of train-trips increasedto 61. The number of platforms and carsincreased to 2103, while the number ofcontainers reached 4364 units. In 2005,76 train-trips were made, number of plat-forms and cars increased to 3422 with 6949container units.
Latvian, Estonian and Lithuanianrailways have been colaborating within theoperator-company Trans-Siberian Intermo-dal Service (TIS). With common efforts re-liable transportation of container freightfrom the Baltic State ports to the CentralAsia regions is carried out in accordancewith the adopted plans. At present, the keygoal is to ensure that the container train isrunning full in both directions attractingnew cargoes and extending transport routesto China, Iraq and Afghanistan. •
11The Baltic Course — Winter 2006 Transport www.baltkurs.com
Latvian Railway in the Process of Change and Development
We publish the interview withUgis Magonis, the Chairman of theBoard of the State Joint Stock CompanyLatvijas dzelzcels (Latvian Railway),given to BC's correspondent on the na�tional railway development issues.
Paldiski Northern Port obtainedinternational seaport passport in 2003 andISPS code in 2004.
Paldiski Northern Port has excellentgeographical location — the Gulf is ice freeand navigable all year round. The PakriIslands and Pakri Peninsula almost fully
protect the Port from the storm-winds andmoving of ice. The travel time of vesselsfrom Western-Europe to Paldiski is approx-imately 3-4 hours shorter compared towhen going to Tallinn.
In order to meet the highest expecta-tions of our clients, large investments have
been made during the past years. Today, thePort has 5 quays with length of 145, 140, 40,35 and 25 meters. Dredging of aquatory andbuilding of protective breakwater werecompleted in 2005. Construction of 6 newadditional berths as well as new infrastruc-ture will be finished by the summer of 2006.The new berths will be used for multipur-pose vessels, ro-ro and ro-pax ferries. ThePort will be able to serve even the largestvessels in the Baltic Sea with maximumlength of 280 m and maximum draught of17 m. The Port is also in a process of build-ing 20,000 m2 of warehouses and 100,000 m2
of open storage areas; there are possibilitiesfor even further developments according tothe needs of our clients.
Both the port and the stevedor-ing services are provided 24 hours and7 days a week. Our professional teamand modern equipment guarantee pro-viding top-quality service and cus-tomer satisfaction. •
Paldiski Ports Ltd Paldiski Northern PortPeetri 31, 76805Paldiski, Estonia
The Baltic Course — Winter 200612 Ports www.baltkurs.com
Paldiski Ports Ltd is a new and rapidly developing private enterprise with the goal of being a trusted partner in internationalmaritime trade and transit. Paldiski Northern Port is situated on the Pakri Peninsula by the Gulf of Paldiski, 50 kilometers to westfrom the Estonian capital Tallinn. We have determined to be an environment friendly port and due to the vicinity of Paldiski citywe are specialized in handling the products that suit city environment: general cargo, dry bulk, rolling cargo, containers etc.
As to the total cargo turnover,Lithuanianport is lagging behind other Baltic competitors.Present situation in the Baltic ports’ turnover isthe following: Tallinn is a constant leader with35,92 mln t, followed then by Ventspils with 26.9mln t, Riga with 22.2 mln t, Klaipeda with 19,6mln t and Liepaja with 4.1mln t.
LATVIAN VENTSPILS PORT INVESTS IN INFRASTRUCTURE
According to Ventspils port leaders’assessments the total cargo turnover in 2005 isexpected to be around 29 mln t which is 1 mln tmore than it was planned for the year.The figuresfor 11 months in 2005 have shown that the rate ofgrowth has been 5 per cent higher than during thesame period in 2004.The turnover has increasedpractically in all sorts of goods, except crude oiland ingredients for sugar production. The “Ro-Ro”-type load transfer increased by 32 per cent,coal shipment by 18 per cent,crude oil cargoes by14 per cent and mineral fertilizers by 9 per cent.About 76 mln t of grain cargoes have beenprocessed in Ventspils’ new port terminal in 2005.
Port’s Board of Directors has adopted thebudget for 2006 and investment program of 29,6mln lat.The program is aimed at general renova-tion of all port’s infrastructure, 3rd quay’s renova-tion which is used for liquid cargoes’ transfer, aswell as chemical cargoes’ berth renovation anddesign preparation for another new terminal.
In 2006 main port’s navigational channelto the harbour will be dredged and enlarged.Ventspils port authorities will invest 26,4 mln latinto innovation and renovation program andabout 3,2 mln lat will come from various EUstructural funds.
TALLINN PORT SETS ON COAL Freight turnover in Tallinn port increased
by 8 per cent to total 30,4 mln t; major share ofprocessed goods, i.e.about 23,8 mln t (1 per centplus) belongs to liquid cargoes, although theshare of crude oil has reduced to 4,3 mln t.Expected turnover rise in processed goods isabout 3-4 per cent; in the two previous years therate of growth was about 10 per cent.The mainreason for decreased rates is simple, i.e. Russianports’ in the Baltics strong activity in oil and oil
products’ transfer.Therefore the increase in 3-4per cent was possible due to increase in coalturnover, e.g. through 10 months of 2005 morethat 3 mln t of coal has been processed (in com-parison to 1,9 mln t in 2004). Coal cargoes arethe second in importance freight items inTallinn port and its export from Russia is con-stantly growing. Modern coal terminal —Muuga Coal Terminal Operator, opened lastsummer is a good impetus into the futureprospect development. The terminal is ownedand operated by the second largest in Russiacoal extracting company Kuzbasrazrezugol.
“Ro-Ro”-type cargo transfer occupies thethird line in port’s load transfer, i.e. during 10months of 2005 about 2,5 mln t of cargoes havebeen processed (about 2,4 mln t in the whole 2004).
Port authority’s intentions are to con-tinue construction works in Muuga port’sEastern part where new terminals and moor-ings are being built.
RIGA SEAPORT RAISES HARBOUR DUTIES Riga port greatly reduced the rates of
cargo transfer in 2005; thus if in January 2005the rates, in comparison to the same month in2004, have been at the level of 9.8 per cent, thecorresponding figures for the 11 months in 2005were just 1 per cent. In late December the har-bour’s Board of Directors decided to increaseharbour rates and duties by an average of 30 percent’ effective from January 2006. LatvianTransport Minister, Ainars Slesers did not how-ever support the decision and said that hewould try to alter it; so far without much avail.
LIEPAJA PORT TURNOVER IS SET ON GRAIN Most of the cargoes — about 2.1 mln t
processed in the port during 11 months in2005 were so-called “general” freight cargoes.The reduction in turnover reached 7.9 percent; for “Ro-Ro”-type of cargoes the reduc-tion topped 28 per cent. The share of bulk-type cargoes in port’s turnover reached 34per cent (or 1.4 mln t) which reflects a generalincrease of 42,1 per cent on yearly basis,including 97.5 per cent increase in volumes ofgrain cargoes. About 607.1 th t liquid cargoeshave been processed (about 25 per cent of
the total), including 576.4 th t of oil products(24 per cent of the total volumes).
About 30 per cent of all cargoes in theport are those from/to Byelorussia.
Infrastructure development program forthe port in 2006 envisaged the following works tobe performed: construction of access motor roadand railway to the port territory,modernization ofa bridge crossing the port channel, maintenancedredging of the harbour entrance and deepeningof the harbour basins. The grain terminal ispresently being built in the port.
KLAIPEDA IS A CONTAINER LEADERActive increase in volumes of contain-
ers’ transport provides strong hopes for thegeneral increase in the port turnover.Alreadyat present this Lithuanian port is an absoluteleader in this type of cargoes among the Balticports, e.g. during last November more than 20th TEU have been processed in the harbour,which is an absolute record in port’s history.
Resent novelty: Stevedore CompanyKlaipedos smeltebrought from Antwerp port twopowerful mobile cranes with 104 t lifting capacityand installed in Klaipeda port. Klaipedos smeltepaid for the deal about 20 th litas and the craneswill be installed at the newly modernized 350 mlong berth.Due to investments,the channel depthwill be dredged to 12.5 m.
All the measures taken by the portauthorities have created good opportunities forKlaipedos smelte to reach the yearly target of250 th of processed containers.Present compar-ative figures are the following: in January-November 2005 period Klaipeda port dis-patched 195.6 th TEU, which is 25.2 per centmore that during the same period in 2004.
Another fact in this regard has to be men-tioned, i.e. redistribution of main goods’ traffic istaking place.Thus, recently the major port steve-dore and operator KLASCO Co.sold its contain-ers’ terminal. It’s quite understandable that thenew owner — Klaipedos terminalo grupe —which has acquired the terminal (the deal is saidto be around 120-130 mln litas) is going to be atough competing agent for Klaipedos smelte.•
Reduced Tempo in the Baltic PortsBy Rita Purina, Latvia
Among the three neighbouring Baltic States fastest cargo transfer turnover hasbeen registered in Lithuania. Thus, during January�November 2005 about 19.6 mln tonscargo have been processed in Lithuanian Klaipeda port, which is 6.3 per cent more thanduring the same period a year before. The rate of growth in the main regional ports dur�ing 11 months in 2005 has been the following: 5 per cent in Ventspils, 4.9 per cent inTallinn, 1 per cent in Riga and 0.9 per cent in Liepaja. Butinge port’s turnover has beennegative during that period, i.e. cargo transfer reduced by 22 per cent up to 5.4 mln t.
54,4
35,9
20,1
Latvia* Estonia Lithuania0
10
20
30
40
50
60
11 months in 2005, in mln t
52,8
34,2
18,9
11 months in 2004, in mln t
FREIGHT TURNOVER IN BALTIC PORTS
* Including small ports. Source: LETA.
The Baltic Course — Winter 2006
Several reasons are worth men-tioning as to such IT service revenuegrowth compared to the size of totalrevenues. As soon as the IT infrastruc-ture’s technical side is already relativelywell developed in most large Balticcompanies, the latter have began to turntheir attention to more effective ITassets’ utilization in efforts to reducemanagement costs. Hence, they began tofocus on adoption of value-added soft-ware systems and solutions. Rise in busi-ness management processes invest-ments, customized programming solu-tions and greater IT systems’ securityhave already boosted IT companiesservices’ revenues. On the other hand,fierce competition both in hardware andre-sold software sales, and consistentlyfalling hardware prices slowed downgrowth in these IT sectors.
Top 5 companies in Prime’s TOP-20ranking list remained the same as in theranking list of the year 2004. MicroLinkGroup has further reinforced its leading
positions by increasing IT service’s rev-enues by 25 per cent.
Main driving forces behind suchgrowth were increased number of cus-tomers outsourcing their everyday IToperations and larger customers’ invest-ments into business applications (likeERP, financial management systems, busi-ness analysis, document management)and custom software applications sup-porting their core business activities.
Sonex Holding showed an impres-sive growth of 58% and inched alongcloser to the 2nd place in the rankings,although Exigen Group managed to pre-serve its previous position. Infrastructureand systems integration solutions, busi-ness management systems, integratedsecurity solutions, and specialized pro-gramming assignments were the mainmovers for growth in Sonex Holding.
Blue Bridge has chosen to concen-trate its activities on 3 strategic direc-tions — programming, informationsecurity services, and consulting, all
which resulted in outstanding IT serv-ices revenue growth of 127 per cent.
Webmedia, capitalizing on itsexperience and know-how in buildingapplication devices for telecom,finance, health care, and public sectors,continued its rapid growth by increas-ing IT services revenue by 68 per cent(data are based only on Estonian infor-mation, ed.). In Lithuania Webmediaalready implemented several projectsand employs about 30 programmers.
Regio showed the largest percent-age growth of 342% in 2005 owing to suc-cessful launching of new technologies,orientation on export based expansionand increased demand in the location-based services market.
It is important to notice that ITservice is mostly a project-based busi-ness and therefore half-year resultsmay not fully reflect the real situationin the market. Ii is important that ITservices market provides additionalevidences in increasing demand for cus-tom programming and business man-agement solutions, systems integration,security solutions, and IT infrastructuremaintenance services. While we expectthat the market leaders will continue toconsolidate their market position weanticipate new dynamic IT servicescompanies such as Regio to emergelater on in ranking lists. •
14 Information Technologies www.baltkurs.com
Demand for IT�service is Gathering Momentum By Martynas Visockas By Vilma LisauskaitePrime Investment, Lithuania
In the first half of 2005, Prime's TOP�20 Baltic IT services companiesrecorded a significant 24 per cent revenue growth in IT services' sales, dou�ble the size of total revenue growth of 12 per cent. The share of IT servicesrevenue in total revenues' collected exceeded 50% for the first time duringlast several years.
E�BANKING’S MARKET IS STILL GROWINGE-banking market continues to grow in Lithuania. In July
2005 this kind of service was used by 1.1m customers, which is40 per cent increase compared to the 784.7 thousand customers ayear ago. Hansabankas which had 507.5 thousand users at the end ofSeptember 2005 and SEB Vilniaus bankas with 486.4 thousandusers retained their market leadership. At the end of 2005 theyshared 83.4 per cent of the market.
Other banks have also been active in promoting their e-bank-ing services. The number of e-banking users at NORD/LB Lietuvahas increased more than twice and reached 108 thousand at the endof September, 2005. Snoras also increased the number of users morethan twice from 15 to 37 thousand.
In Latvia the number of Hansabank e-banking service usersgrew up by 33 thousand and reached 382.7 thousand in the 2005.SEB Unibanka added 27.8 thousand new users (reaching 206.7 thou-sand at the end of June 2005).
Estonian Uhispank, a member of SEB Group had 376 thou-sand users at the end of 2005 which makes a 10% increase com-pared to the beginning of 2005.
LITHUANIAN IT MARKET IS THE FASTEST GROWING IN THE BALTICS
According European Information Technology Observatoryforecasts, Lithuanian ICT market is going to be the fastest growingamong the Baltic countries in 2005. It is expected to increase by11% while Estonian and Latvian ICT markets’ growth will be at9.3% and 6.3%, respectively.
Experts have noticed that this growth had been due toincreasing demand for telecommunication solutions and constantlygrowing computer sales, which in Lithuania were accelerated by thetax incentive for private PC buyers. The law allows purchasers off-set the costs of a newly acquired PC from their taxable income upto the end of 2006.
SONEX SISTEMOS TO SETTLE IN LATVIASeeking to strengthen its positions in Latvia UAB Sonex sis-
temos, a business management and accountancy systems provider,has established a daughter company Softex Sonex Systems Ltd.
According to UAB Sonex sistemos director, Ruta Grigiene,computer programming company Softex Latvia owned by Sonex
IT News
15The Baltic Course — Winter 2006 Information Technologieswww.baltkurs.com
TOP�20 BALTIC IT SERVICES COMPANIES IN H1 2005, IN TH. EUR
Consolidated companies:1 In H1 2005: AS MicroLink, AS MicroLink Eesti, SIA MicroLink Latvia, SIA Baltijas Datoru Akademija, SIA FMS, UAB MicroLink Lietuva (former MicrolinkData), UAB Baltijos Kompiuteriu Akademija (former Microlink Netcoms), UAB Fortek IT. In H1 2004: AS MicroLink, AS MicroLink Eesti, SIA MicroLinkLatvia, SIA Baltijas Datoru Akademija, SIA SAF Technika (Group‘s company till May 2004), UAB MicroLink Data, UAB MicroLink Netcoms, UAB Fortek IT,UAB Doclogiksas (Group‘s company till August 2004).2 SIA Exigen Latvia, DATI Exigen Group.3 In H1 2005: UAB Sonex Kompiuteriai, UAB Sonex Sistemos, UAB Sonex Identifikaciniai Duomenys,UAB Informaciniu technologiju techninis centras, UABArs Computandi, SIA Sonex Riga, SIA Softex Latvija, AS Sonex Computers, Soneks (in Moscow). In H1 2004: UAB Sonex Kompiuteriai, UAB Sonex Sistemos,UAB Sonex Identifikaciniai Duomenys, UAB Informaciniu technologiju techninis centras, UAB Ars Computandi, SIA Sonex Riga, SIA Softex Latvija, AS SonexComputers, UAB Sonex Lizingas, ZAO Sonex and ZAO Xorex�Service (both Byelorussia).4 UAB Informacines Technologijos, SIA Mebius IT, UAB Mebius IT Vilnius, OU Mebius IT (since the 2nd half of 2004).5 In H1 2005: AB Alna, UAB Alna Business Solutions, UAB Alna Software, UAB Alna Intelligence (former UAB Alna techninis centras), UAB Alnosinfrastrukturos sprendimai (former UAB Infovita), UAB DocLogix, UAB Tesauras, SIA Unitree, OU Persimplex. In H1 2004: UAB Alna techninis centras, UABAlnos mokymo centras, UAB Infovita, UAB DocLogix, UAB Tesauras.6 UAB Elsis, UAB Elsis�Biuro sistemos, UAB Elsis�Verslo sprendimai, UAB Elsis�TS, UAB Elsis GP (the latter wasn’t in H1 2004).7 SIA IT Alise, OU IT Alise Eesti, SIA E�Protect.8 Only Webmedia Estonia, without Webmedia Lithuania.9 UAB Sintagma, UAB Sintagma technika.10 UAB New Vision Baltija, SIA New Vision, AS New Vision.
In the list IT service revenues include software development, programming, system integration, maintenance, software and system implementation,training, consulting services, and sales of software products developed in�house. These revenues do not include any sales of hardware, resold software,office equipment or other products.
Holding created a department, which acted as a business man-agement systems provider; the department has grown up into aseparate company, Softex Sonex Systems Ltd which is subordi-nate to UAB Sonex sistemos and has 11 employees.
UAB Sonex sistemos expects a turnover aroundEUR 2.6m in 2005.
GLOBAL INFORMATION TECHNOLOGY REPORT�2004According to the new Global Information Technology
Report published by World economic forum, Estonia is a
leader among Central and Eastern European states in ITTsector competitiveness. In the overall rankings Estonia holds25th position globally. Lithuania has lost one position-lineduring 2004 and is on the 43rd place and Latvia has droppeddown from 35th to 56th.
According to the Report Central and Eastern Europeanregion is much more advanced than the biggest South Americaneconomies, because of numerous foreign investments andproper decisions by the governments while preparing for themembership in the EU.
IT News
The Baltic Course — Winter 2006
Real estate acquisitions are most pop-ular among young and active people withhigher education and high incomes, mostlyLatvians rather than Russian-speakingaliens. According to the surveys carried outby the Bank of Latvia, approximately onethird, or about 29 per cent of Latvian popu-lation planed to take bank credits, of which13 per cent are willing to turn into real estatemortgage. The number of those ready to pay30-50 per cent of their incomes to cover cred-its has grown rapidly; according to the Bankof Latvia’s forecasts this trend will furtherdevelop within the coming several years.
LATVIAN COMPANY HOUSE’S OPINION There are today several quite differ-
ent operational models functioning inLatvian property market, starting with bigforeign companies dealing only with con-struction project’s development and up tosmall local firms, which manage to combinethe whole spectrum of real estate business.It is obvious that on rapidly growing marketone can make pretty good profits; one can
have good returns too acting only as a bro-ker. Important to note that experienceddevelopers frequently select brokeragecompanies as partners, because they do notregard them as possible competitors.
According to LURSOFT data, mainor substantial part of more than 2300 com-panies’ activity registered in the LatvianCompany House (Register of Enterprises inLatvia) is connected with real estate andproperty issues. These companies’ turnoverequals to 440 million lats (6% of GDP in2004, an increase of 45.2% in comparison to2003). More than 1000 enterprises’ profitscome from sale or rent of houses and apart-ments, 600 firms deal with property adminis-tration and more than 400 are engaged inintermediate services concerning sales andrent of property. According to the LUR-SOFT President Ainars Bruvelis’ estimationthe turnover of the companies engaged inselling real estate amount to less than 10%of all transactions on the property market.
It is impossible to find out amount ofindividual enterprises’ turnover using the
LURSOFT data as many market partici-pants register several companies and do notalways use the company’s head name in theirdeals. Besides, many companies earn profitsin the way which is not directly connectedwith operations on real estate market.
Most of well-known property marketparticipants are “LANIDA’s” members, i.e.Latvian Real Estate Association establishedin 1994. At present there are 36 member-companies and more than 200 certified bro-kers and agents (the latter are so-called can-didates to brokers) in the association.Recently Latvian developers created theirown association with the primary task ofcreating a standardization system of behav-iour patterns and standard rules in deter-mining the quality of property constructions.
ONLY 2 PER CENT ARE FOREIGNERS Regular statistical analysis conducted by
LURSOFT together with experts from LatvianLand Register (LR’s Land Book) providessome ideas as to the size of the real estate mar-ket in Latvia. Thus, for example, 87,243 con-tracts for real estate purchase have been regis-tered in Latvia from July through September2005. About 24 per cent were property settle-ments and acquisitions, about 44 per cent werepledge contracts.About half of all the propertytransactions are connected with buying andselling residential property, 33% are with landacquisition,12% — with land and non-residen-tial buildings (See Chart 2).
16
Market ReviewReal Estate www.baltkurs.com
By Olga PavukThe outcomes of a study carried out by a System of Correlative Data published
in last November have confirmed the trends that had been the object of discussionin Latvian society for a long period of time. For example, about 54 per cent ofLatvians considered the most reliable investment options were investments into realestate which had been showing constant increase in returns. Latvian real estate mar�ket’s share in national GDP equals to 6 per cent, and together with the constructionindustry involvement the GDP share exceeded 11 per cent.
Increasing competition in Western Europe and slow eco-nomic growth has turned developers and investors’ attention toemerging markets in the East, e.g. the Baltic States and Ukraine.When Lithuania, Latvia and Estonia joining the EU in May 2004additional interest towards these markets had emerged.
Good-quality constructions in the Baltic capitals — Tallinn,Vilnius and Riga drew special interest from foreign investors.“Baltic States, although small in territories, are active and highlydeveloping entities attracting investors’ interests”, said CatalystCapital EM’s European division representative Kean Hird. Mostactive in the Baltic region are investors from Scandinavian coun-tries; other foreign investors and developers are also showing inter-est in the Baltic property market.
Real estate market formation in the Baltic States dates back to thebeginning of the 1990s after these countries gained independence.
Important to mention that precisely at that period of time the first interme-diary property consultancy firms rendering services have appeared.Amongthem there were both the companies with earnest intentions in business andthose who wanted to earn quick money at any cost. The former behavedcorrectly treating property buyers and sellers respectfully,caring about theirreputation; the latter frequently defrauded their clients.The activity of thelatter became the source of crime and swindling in the real estate market,and, furthermore, set a negative seal on the real estate broker’s professionin society. Big property companies have accumulated their efforts into pro-fessional real estate and property organizations in order to resist swindlers.These organizations have been engaged in regulating situation in the prop-erty market, increasing professional level of brokers thus establishing highstandards in the quality of intermediary property services.
In this BC’s issue we present our correspondents’ analysis ofproperty market situation in the three Baltic States.
Latvia is Following European Example
Real Estate in the Baltic States Information support:
REGISTER OF ENTERPRISES OF THE REPUBLIC OF LATVIA
Almost half of all contracts (44.6%)are settled in the Latvian capital and sub-urbs; health resort Jurmala takes only 3.5%,Jelgava — 5%, Liepaja — 5.6%, Daugavpils— 3.8%, Ventspils — 3.3%. Approximately86% of the property in the country is ownedby Latvians (both citizens and aliens).Contrary to the opinion that foreigners inhuge numbers buy-up real estate in thecountry, the statistics show that the foreign-ers’ share is only 2%, e.g. 3.5 per cent in Rigaand 4.3 per cent in Jurmala (See Chart 3).
According to LURSOFT data, a sortof record was setup in last November, i.e.the total sum of pledges fixed in theRegister of commercial pledges during oneweek totalled 1 billion lats, or 1.4 billioneuro. During 11 months in 2005 this indexexceeded 8 billion lats which was the high-est index since Register’s creation.
HEATED MARKET’S EXPECTATIONS According to data provided by real
estate market experts, the apartment pricesin Riga has risen by about 300% during lastfive years; central statistical office’s datapredicts that the prices will be rising rapidlyin the near future too. The average sum of aregular real estate deal in the first half of2005 was 17,700 lats (25.18 th euro), whichwas 43% more than a year before.
From December 2004 throughDecember 2005 the average apartmentcosts in regular block-houses increased byabout 40%. However, new constructionsprovided for an absolute record, i.e. in sev-eral constructions a two-fold increase inprices per sq m has been noted. Experts inthe property sphere predict a slow down inthe rate of price increase in the near future.
According to expert opinion, includingthat of Latio chairman, Edgars Shins andNORD/LB Lietuva CEO’s Adviser, VadimasTitarenko, there is a significant distortionbetween the price of rent and the selling-prices in real estate deals. Thus, according tosome experts’ estimates, the sq. meter price inresidential housing in the centre of Riga mustnot be more than 1000 euro, while the pres-ent price level is of 2500-3000 euro.
An increasing number of speculativedeals where the property is bought as an invest-ment with the purpose of re-sale have alsoaffected the prices.According to real estate bro-kers about 50% of new residential property hasbeen bought just to be resold at a later date.Thisactivity forced many property developers toalter their contracts with clients, e.g. the modelagreement now generally include a clause pro-hibiting the apartment owner resale of propertyuntil the deal has been completed by the devel-oper. There are some other new safeguard
measures, e.g. landing banks no longer issuecredit for land acquisition without alreadyinstalled engineering communication.The lattermade it possible to limit the number of transac-tions with the land in the “fake settlements”.
THE PRICES COULD RUN OF UP TO 5,000 EURO PER SQ M
Property prices’ growth in the begin-ning of 2005 coincided with the constantclaims concerning property market’s over-heating. In December 2004 Latio real estatevaluations have shown that average apart-ments’ price in a typical residential con-struction in the capital was 559 euros per sqm, in the fall of 2005 the price was already857 euro. The same trend has been recordedin the new housing sector: 720 euro per sq mversus present 1250 euro (the former priceis for an apartment without finished inte-rior, the second with just a white-pain fin-ish). Today quite a few property developerswould offer potential buyers an apartmentwithout the interior being properly finished.
All in all, the activity on the market forresidential apartments in the center of Rigaand in Old Riga downtown during Octoberremained at a constant level. Average trans-action in old Riga during October was withinthe limits of 3000-4500 euro per sq m, and inthe center of Riga — 1700-2000 euro. Thereis a lack of quality apartments in the center,thus 50 -100 sq m apartments within theprice limit of 1400-1600 euro per sq m are ingreat demand. Altogether, the demand isdivided into two categories: the first categoryincludes people giving preferences to theapartments with no interior finish in the cen-ter’s periphery; the second group consists ofinvestors choosing renovated apartments
mostly in the “quiet center”, e.g. alongKalpaka avenue, Rajna boulevard andAspazijas boulevard. A new trend has beenrecorded, i.e. massive new multi-apartmenthouses’ construction with the tentative priceof 5000 euro per sq m in the historical part ofthe city. On the other hand, in old Riga terri-tory the entire sector of the property marketdealing with land acquisition has practicallydisappeared during last year. Brokeragefirms do not even include presently the priceof land in their evaluation materials.
The price situation in the “wanted-by-all” Jurmala district is both different andstrange. For a two-room apartment in aSoviet-type multi-storied apartment block(many are still called “special constructionprojects”) which often owned by localadministration, prices are in the range of 70-80 th euro (1600-1700/sq m). For the sameapartment with the finished interior the pricewill be about 100 th euro per sq m.And theseprices are fixed combining complete lack ofany proper infrastructure, poor and outdatedaccommodation facilities. In exclusive multi-apartment buildings in Lielupe-Dubulty dis-trict (residential premises are booming in thehealth resort) the price per sq m reaches 3 theuro and more. As to luxury houses inJurmala, they are sold at a price of 2-3 mil-lion euro. Owners of 300 sq m apartment inthe multi-storied block on the sea shorewould ask a million for it.
EURO IS TO BE BLAMED A year ago only optimists could pre-
dict such steep escalation in residentialdepartment’s prices. It seemed initially thatthe period of prices’ increase connected toLatvia’s joining the EU would come to an
17The Baltic Course — Winter 2006 Real Estatewww.baltkurs.com
The Baltic Course — Winter 2006
end. But already first months in 2005destroyed all previous predictions.The mainreason for drastic changes has been thechanges of lat paged to euro instead ofSDR-basket. One might expect slack timeafter the boom in prices when Latvia joinedthe EU. As it often happens, instead of con-verting dollars into euros (as all real estatetransactions were settled in dollars) thedevelopers have left the figures in contractsintact and only changed the currency abbre-viation from the USD to EUR.
LOW INTEREST’S EFFECT The credit market in Latvia has been
rapidly developing during last five years.According to central statistical office data thegeneral number of property mortgages hasdoubled each passing year reaching presentlyabout 20% of Latvian GDP.The effect of lowmortgage’s interest rate and credits produceddirect effect on the real estate market wherethe prices have been growing rapidly for thelast several years although people’s purchas-ing power was not adequate to such a growth.If the credit market development continuesat the present rate, the volume of citizens’credits and loans in Latvia will approach thenational GDP’s volume. In this scenarioexperts predict a reduction in the demand forcredits; at this stage it is possible to expect thedecrease in economic activity, purchasingpower decrease and lowering inflation.
According to Latvian commercialbanks association’s data, the volume of hous-ing mortgage credits provided by the banksduring 10 months in 2005 increased by about77 per cent (or 682.3 mln lats). All in all, theamount of issued mortgage credits reached1.57 bln lats, including 76.8 mln lats during onemonth, in October 2005. In the beginning ofOctober mortgage real estate credits equaledto 40.6% of the total volume of banks’ credits.
Under such property market condi-tions the banks’ attention to the market hasgrown too with particular concern towardscreditors’ financial liability. In line with theincrease in property prices the credit termsand sensitivity to changes in the interestrates increased too.
NEW PROJECTS’ DEVELOPMENTDuring two months — from August
through September 2005 — Ober Haus RealEstate Latvia conducted its first complete anddetailed investigation of Latvian new con-struction and development projects.The studyshowed that the multi-apartment constructionwas the most attractive sphere under newprojects: out of total 454 construction projectsabout 67 per cent or 306 projects accountedfor new constructions, which is double the
amount (!) as to a year ago. A share of newconstruction’s increase in Riga is about 31 %or 5 per cent increase per month (!). In Rigacapital region the prices have grown by 21 percent and in other Latvian regions by 10%.
Some 115 new multi-apartment projectswere initiated on the market in the first half of2005 and more than 130 projects are still pend-ing in the national construction commission.In2005 some 63 multi-apartment constructionprojects have been concluded which increasedgeneral residential apartments’ stock by 3025new entities. With the active constructiondevelopment some larger projects consistingof 200 and more apartments have appeared onthe market; there are presently 17 such proj-ects. Although it is only 6% out of the totalnumber of multi-apartment construction proj-ects, the total quantity of the apartmentsoffered for consumers in these houses is quiteimpressive. In the near future an additionalactive involvement is expected into derelictmilitary and industrial property to becomedesirable residential areas.
VENTURE INVESTORS ARE WINNERS The activity of the American invest-
ment trust New Century Holdings (NCH)gives an example as to the way the ventureinvestors act on Latvian and other BalticStates’ real estate markets. NCH appeared onthe market of Latvia in the beginning of 1990s.From the start it was involved in all kind ofactivities, e.g. from bank dividends and depos-itory investments, to privatization certificatesand shares in industrial companies, before ithas became one of the most serious real estatemarket players. But today this owner of thebest projects and pieces of land in Latvian cap-ital is selling out its property. However, asAndris Kupcis, Chairman of the Board inDomus, one of the NCH’s subsidiaries, arguedthat the holding would not be leaving Latvianreal estate market. “We just give our prefer-ences to some other construction projects;most urgent of them are residential apartmentbuildings “Saules loks” in Yaunmarupe regionand a trade & entertainment complex “RigaPlaza” in Pardaugava”, said A. Kupcis. Theholding plans to invest 3 mln USD in the newYaunmarupe construction project.
APARTMENTS FOR RENTAccording to Ober Haus, an increase
in the number of vacant apartments’ unitsappeared on the market in October 2005.The cost of a short-term apartment rent inthe center or old Riga
still remains in the range of 30-100 europer day; rental costs for a top-class apartmentis within the range of 8-12 euro per sq m.Quality apartment’s requirements for long-
term rents remain constant, i.e. sufficientlyquiet place, convenient infrastructure, ade-quate leasing arrangements, good conditionsof the house and its qualitative renovation.
COMMERCIAL PROPERTY MARKETCommercial areas. During the fall of
2005 the demand for commercial propertyin the active center of Riga and in old Riga-city region remained invariably high. Thedemand was mostly instigated by foreignbusinessmen wanted to initiate business inLatvia, as well as by local traders wishing toexpand. Active credit banks’ policy stimu-lated the trend of purchasing propertyinstead of leasing.
Together with the beginning of activeproperty trade period the rental rates showedlittle growth, which is typical since the demandon the market significantly exceeds the supplyside. Thus commercial property prices in theRiga center were in the range of 30-50 europer sq m (including VAT and utility bills). Inthe existing shopping centers the rentalexpenses are within 15-50 euro per sq m(including VAT and utility bills), permanentleaseholders usually pay 9-11 euros per sq m.Prices in the old Riga territory are 20-45 europer sq m including VAT and utility bills. Offersfor sale of commercial property are a very sel-dom thing to find; therefore the cost for goodproperty in down-town next to active peoples’routs can reach 2500-4000 euro per sq m and5000-7000 euro per sq m in the old Riga.
Active search for good office premisesin the market has been renewed recently andsome additional supply followed. But there isstill lack of new and renovated office’s prop-erty both in the active center’s part and citysuburbs. Most of the apartments in new con-structions — at the end of 2005 — have beenalready rented out long ago. At present therange of prices are the following (in euro persq m): for A-class office areas 16-20, for B-classoffices 7-15, for C-class offices 6 and less.
FORECASTSChairman of the Arco Real Estate
board, Aigars Shmits is confident that thenumber of speculative transactions will besoon reduced and that the average price fora sq m in the newly constructed buildingshas already reached its optimum level,which is about 1300-1800 euro per sq m(with the finishing), the price which today’smarket is ready to accept and customers areready to accept. Probably under one condi-tion, i.e. that wages are raising and nationaleconomy is growing, the latter will certainlyaffect the property prices’ level.
The chairman of the Balsts’ board,Aigars Zarinsh argues that during next five
18 Real Estate www.baltkurs.com
years real estate prices will continue to grow,but not as rapidly as it was, maybe just in therange of 15-20 per cent a year: “So if there isa possibility and need you better buy it nowthen latter. In case of crisis the prices willdrop, as well as developers’ interests thoughthe volumes in the market turnover will bedifferent. But to my mind there will not beany critical times in the next five years, themarket will grow permanently “, he added.
MILLIONAIRES AND THEIR TRANSACTIONS
Out of about 500 Latvian millionairessome 64 are involved in the sphere of real es-tate and construction sector.According to da-ta published in the book “Secrets of LatvianMillionaires” written by Lato Lapsa and Kri-stine Yanchevska it’s the second rate of mil-lionaires after trade and service sector withabout 90 businessmen-millionaires. Mostfamous among them are realtors JevgenijGomberg (Teikas nami), Edgars Shins (La-tio), Uldis Pilens (UPB holding company),Aldis Plaudis (Vesta). Among most influenti-al landowners in the country are: Gatis Sakni-tis (5.6 th hectares), Agra Saknite (more than4 th hectares), Igor Skoks, former VentspilsNafta’s president (1825 hectares with cadas-tral value of more than 500 th lats).Three bu-sinessmen from Liepaja, i.e. millionaires An-dris Grigis, Aivars Burgis and Ivars Kesen-felds are planning active business policy inRiga. The real estate company Mes Liepajaiwhich they own has bought a building in oldRiga at 6 Smilshu str. where now theNORD/LB Latvija office is situated. For twobuildings in downtown Riga and the adjacentland plots the new owners allegedly paidabout 6.55 mln lats.
According to Dienas Bizness infor-mation the following property assets havebeen sold in Riga from July 2004 to August2005: 4 houses with total cost in the range of
2 to 4 mln lats, 7 houses valued from 1,5 to2 mln lats, 9 houses from 1 to 1,5 mln latsand 19 property objects valuated from 0,5 to1 mln lats. For example, Rudolfs XII Ltdbought a six-storied building on 12Blaumana str. with the adjacent large landplot of about 1,7 th sq m for 3,7 mln lats; thecompany was registered at the day of thistransaction, and its only owner is presentlythe former Latvijas kugnieciba’s presidentAndris Klavins.
The Dienas Bizness newspaper wrotethat according to real estate market infor-mation, several houses in the center of Rigahave changed their ownership recently; thecost of some transactions exceeded severalmillion euros, e.g. the building at Sateklesstr. and Lacplesa str. intersection was soldfor 9 mln euros. However, none of thesetransactions had been registered either inthe country’s land register or in any otherstate register. According to real estate mar-ket participants, this fact underlines thatthese transactions were conducted throughoff-shore companies or with the use of somecapital funds. Such arrangements make itpossible to avoid public scrutiny and reducetax liability.
Only 5 firms dealing with real estatehave been included into the list of Top-500Latvian enterprises in 2004 composed byDienas Bizness and LURSOFT. In the list’ssecond hundred were three property com-panies, i.e. Uninams (specific real estateprojects with annual net-turnover of 17.8mln lats), Kurzemes namu apsaimniekotajs(property administration with 11.7 mln latsturnover) and Europas Partneri (real estatetransaction with 11.6 mln lats turnover). Inthe list’s third hundred has been ValstsNekustamie ipasumi with 6.9 mln latsturnover and one company in the list’sfourth hundred was NDX Depelopmentwith 5.7 mln lats turnover. It is interesting to
note that none of the above mentioned mil-lionaires have been mentioned in the Top-500 list.
500 FRAUDULENT TRANSACTIONS DURING 5 YEARS
Notary officers, bank experts andNational Economic Crime Police’s repre-sentatives already acknowledged that con-sumers very often did not fully realize allthe risks and legal consequences involved inreal estate transactions. “Quite often cus-tomers’ major attention is attached to thespeed with which a property transaction isimplemented. However hasty actions canoften lead to loss of money or property”,said Economic Crime Police DepartmentHead, Gatis Gudermanis at a seminar onthe risks in property deals’ credits. About500 notes about fraudulent transactionshave been registered in Economic CrimePolice Department during last five years, hesaid. At the same time in Latvian courtscases concerning property deals’ annulmentcan last up to one-and-a-half year.
BECOMING A REALTOR...From 1 September, 2005, engineering
economics faculty at Riga TechnicalUniversity began enrolment for a new bach-elor program called “real estate manage-ment” with post-graduate qualification in“real estate economics”. Student can beenrolled into three main specializations, i.e.real estate transactions, real estate assess-ments and property management & admin-istration. This education project has beendeveloped due to three professional associ-ations’ initiative and close cooperation, i.e.“LANIDA”, “LIVA” (Latvian propertyassessment association) and “LNPAA”(Latvian property management associa-tion). In a couple of years a master degreeprogram is scheduled to start as well. •
19The Baltic Course — Winter 2006 Real Estatewww.baltkurs.com
5626
18
Sale or lease of real estate/propertyProperty administration/managementIntermediaries in property sales and rents
49
33
126
Residential property salesLand acquisitionsLand and non-residential buildings’ salesOther transactions
Jelgava and region
30,3
14,35,653,83,53,3
34,2
RigaRiga regionLiepaja and region Jurmala Ventspils and region Other regions
ENTERPRISES' DIVISION ACCORDING TO ACTIVITY TYPES, 2004, IN %
FORMS OF REAL ESTATETRANSACTIONS IN LATVIA, IN %*
GEOGRAPHY OF REAL ESTATETRANSACTIONS IN LATVIA, IN %*
Source: LURSOFT, Zemes gramata (Land Register).*July–September, 2005.Source: LURSOFT, Zemes gramata (Land Register).
*July–September, 2005.Source: LURSOFT, Zemes gramata (Land Register).
The Baltic Course — Winter 2006
Average national real estate percapita figures are somehow more mod-est, i.e. about 25 th litas. According tothe same pools, there only five citiesand two regions in the country where aprice for a sq.m of real estate exceed1 th litas or 290 euro. As for the rest ofthe country’s territory a sq.m costs lessthan 500 litas.
MOST EXPENSIVE PROPERTY Without doubt the most expen-
sive real estate is in Vilnius with aver-age sq.m price from 3 to 4 th litas; two-room apartment of 50 sq.m on the sec-ondary market would be at the level of200 th litas or 580 th euro.
Second expensive city is Klaipedawhere the prices are not far away from the
capital ones. Probably inPalanga a sq.m would be a
little bit cheaper. InKaunas, second by pop-
ulation city in thecountry sq.m prices
are around 1.5 thlitas, which
ranks fourthas to gen-
eral reales ta te
prices in the country. Renting an apart-ment in Vilnius would be around 500 litas,in Kaunas — 300 litas and in Klaipeda350 litas per month.
At the end of 2005 the price curveceased to ramping to skies, climbingslightly instead, e.g. in Vilnius andKlaipeda the prices had risen by 2 percent a month.
SUPPLY AND DEMAND During last five years an increase
in construction volumes almost dou-bled; construction engineers suggestedfuture constant growth for apartments,clearinghouses and office premises.Leaders in national construction asso-ciation suggest 5 per cent growth inbuilding market in the coming years,not less due to ever growing increase inold factories and offices renovationworks, as well as various kinds of man-ufacturing premises.
As to residential sector, it has stillexperienced increasing growth in con-struction works; construction engineersdo not hide the main reason behind thephenomenon — increasing availabilityof banks’ mortgages credits to popula-tion. But there is still lack of privateapartments in the country; besides anaverage per capita sq.m share inLithuania is 10 sq. m lower than aver-age share in the EU countries which is32 sq.m. Experts in construction busi-ness doubt that prices for new apart-ments would go down; on top of all, theprices increased for construction metal,workers’ salaries as well as land prices.According to statistics, constructionsector profitability in last yearsincreased by 1.5 times.
Lithuanian construction associa-tion’s chairman, Adacras Sheshtauskasadmited at a recent press-conferencethat “wise people had been those whoinvested in civil construction sector, asgrowing prices on the property market
can assure good profits”. On the otherhand, construction engineers complainabout lack of qualified local construc-tion workers; they went to other Westerncountries instead. But growing construc-tion volumes need more workers!
Contradictory evaluations of thereal estate market and its developmenthave been instigated by shocking priceswhich transformed previously stableproperty assessments. Thus, accordingto Spinter tyrimai pools made underorder from Delfi-internet portal, about84.4 per cent of Lithuanian citizens donot intend acquire any property in thenear future. As realtors’ researchorganization found out that only about9.6 per cent of respondents would liketo buy property. Only 76.6 per cent ofrespondents used consumer credits and5.4 per cent used mortgage credits.Some experts argue, therefore, thatspeculative increase on real estate mar-ket has not been the factors of mass-breakthrough on the property market,especially in its secondary sector. Butonce jumped up the prices are not will-ing to descend!
Population pools reveal interest-ing fact: only 17 per cent of people inVilnius entrust their deals with realestates to realtors and experts in suchkind of deals. Pools conducted by TNSGallup once again revealed alreadyknown thing, i.e. secondary propertymarket is still quite popular. The TNSGallup pool has shown that Vilnius’ cit-izens look quite optimistic into thefuture: 38 per cent wanted to buy eithernew houses or new apartments, 26 percent would rather seek opportunities inthe secondary market (with 2 to 15 yearsold apartments and houses).
At the same time it is hard tobelieve that even regardless of cheap,until recently, availability of creditsmore that half of Vilnius populationwould buy new houses or apartments,not withstanding low share of percapita sq.m in the country, in compari-son with general European norms.
Some other figures are used amongreal estate experts: only 7 per cent ofpeople in Vilnius intend to acquire orsell property. As a matter of fact, thenewly constructed houses and apart-
20 Real Estate www.baltkurs.com
Lithuanian Real Estate Market's Got Bullish,although not due to Deals By Tatyana KomorskayaLithuania
As an outcome of the first ever in Lithuania general assessment of real estateproperty it has become evident that aggregated property value owned by country'scitizens exceeds presently 85 bln litas. About 40 per cent of the new houses andapartments in the country belong to the market in its capital, Vilnius. Real estateper capita share in Vilnius is about 62.2 th litas or about 18 th. euro.
ments are in prevailing demand in thecountry; thus about 95 per cent of allnew houses and apartments in 2005 havebeen sold long before the final construc-tion. The rest apartments’ 5 per centowners have kept to themselves inexpectation that prices would still go up.Realtors confirm that most wanted one-and two-room apartments are soldwithin 24 hours after appearing on themarket list.
CREDITS ARE UP, DEALS ARE DOWN According to Marketing and
Evaluation Department chairman inOber Haus real estate agency, SaulusVagonis they expect an increase in peo-ple’s investments in property market inthe coming years. Somehow it does notmean an increase in the numbers ofdeals but first of all never seen beforeincrease in property prices, both inhouses/apartments sector and in someother sectors, as well, e.g. in logistics.
Some other factors influence thenumber of deals, such as people’smigration and ECB interest rateincrease. Although the number of dealshas eventually reduced the resourcesinvolved in each deal have increasedafter all. Some experts in the marketargue that the real estate prices are arti-ficially overstated and supposed ade-quate bank credit’s portfolio growthdoes not reflect the real situation in themarket. This fact is recognized bybanks’ experts too admitting less num-ber of property deals in Lithuanian civilconstruction sector in 2005 in compari-son to the previous year.
THE TIME FOR CHEAP CREDITS IS OVER Last December ECB raised inter-
est rates for the first time in five yearsto 2.25 per cent; some say the nextincrease is on the way which will drawup credit prices. But ECB’s interestrate increase by a quarter percentagepoint was not a big secret — somecountry’s banks informed their clientsin good time. One thing is clear in thisregard — it seems that the era of cheapcredits is coming to an end.
Some bank experts say that real-tors’ predictions concerning constantincrease in property prices can have“boomerang effect”. Besides mentionedinterest rate growth Lithuanian prop-erty market is influenced by a newproperty tax on commercial activitywhich entered into force from 1 January2006. The new tax will distort the whole
real estate market: thus, for example,almost all SMEs having no resources torent office premises have been left to asimple option, i.e. making “workingplace” in their houses and/or apart-ments. Under the new law these activityis subject to taxation.
ADMINISTRATION CHANGES As soon as previously functioning
association which united all firms andcompanies working in the real estatemarket ceased to exist, acquiring reli-able figures about the market is becom-ing a rather difficult problem. Butchanges are on the way: CentrocubasNekilnojamasis turtas Ltd. DirectorZigfrid Rachkovskij, himself memberof the late association, maintains thatvery soon a new property brokers’Union will be established, most proba-bly covering territory of all three BalticStates; our intention is to license thatsort of activity, he adds.
According to statistics, whichpeople in the sector confirm too, out ofabout 80 companies actively involvedin the country’s real estate marketabout 40 companies are situated inVilnius. Among well-known companiesand the following firms: Inreal, OberHaus, Resolutio, E.L.L., Koba, Centro-cubas Nekilnojamasis turtas, DomusOptima, Faulana, Arx Legis, Matininkaikorporacija.
It has to be mentioned that the“distance” between those well-knownreal estate companies and all others isreally great: in Vilnius only there areabout 450 real estate companies listed inthe capital’s internet site VisaLietuva.
INVESTORS SPREAD THEIR NETWORKS At the end of 2004 Lithuanian
property development association wascreated which united 41 real estatecompanies. They have distinguishedthemselves from so-called intermedi-aries in the way that the former are aswell main property developmentinvestors both in the country and out-side. These are the following companies(mostly of Ltd-type): Ogmios centras,Vilsota, E.L.L., Nekilnojamasis turtas,Erika, Hanner, Invalda Real Estate,Korporacija Matininkai, MG Valda,Ranga IV invesicijos, Vilniaus Akro-polis and some others.
Most of these companies are theleaders in property developmentinvestments. Their activity is clearlyseen in Vilnius, i.e. sky-scrapers and
modern houses constructed in variouscity regions.
Main idea behind the new associ-ation was to defend their members’professional interests but it is at thesame time an influential body con-fronting local and regional administra-tion’s interests. Thus the associationhas complained over Vilnius major’sactivity whose relationship with thereal estate companies has become quitetense, i.e. the realtors complained overmajor’s inclination favoring “his owngroup’s interests”.
A share of complaints is con-nected with land acquisition: expertsalready envisage increasing land prices.A growing trend has been apparentlately: e.g. investors acquire big land-lots with the idea of splitting them uplater on and selling one-by-one tofuture developers. The land territoriesthat are bought up actively are aroundVilnius, Kaunas and Klaipeda.
Lithuanian investors are quiteactive not only in their own country;they strongly invest for example inLatvian capital Riga. Thus, at the terri-tory of the former Aurora Baltikahosiery factory two Lithuanian realestate companies Ranga IV investicilosand Hermis Capiital are going to investabout 99.2 mln litas (28.5 mln euro) forapartment house construction withabout 300 ready-made apartments forLatvians.
At the end of last NovemberLithuanian realtor Hanner reportedabout the conclusion of a preparatorystage in apartment-house construction inRiga where the company intends toinvest 57 mln litas, or 16.6 mln euro.
At the same time Hanner wouldlike to invest 63 mln litas (18.3 mln euro)in the 12-stored apartment building (22thousand sq m) in a resort city Gurzuf,Ukraine. The Hanner real estate com-pany together with co-partners intendsto invest about 1.4 bln litas (40.8 mlneuro) in Ukraine, mostly in construction,e.g. apartment houses, trade and healthcenters, business offices premises.
Hanner has elaborated plans for73 mln litas (21.3 mln euro) investmentin Rumania. At the same time the com-pany wishes to invest in the comingyear about 175 mln litas (51 mln euro)into civil construction projects inVilnius.
Total real state investments inVilnius are expected to be at the levelof 505 mln litas, or 147 mln euro. •
21The Baltic Course — Winter 2006 Real Estatewww.baltkurs.com
Main trend in the property market is“sell & buy-type” deals; an increase per ye-ar has reached 51 per cent. Thus the totalnumber of property deals increased by90 per cent. In the third quarter of 2004 thegeneral value of all property deals conclu-ded in the country reached 5.5 bln crone, bycontrast, in 2005 the corresponding figurereached 10 bln crone. Each year more than50 thousand deals are concluded in thecountry, something that never happened inits history.
EVER INCREASING PRICES In the first half of 2005 an average-
sold apartment costed about 650 th crone(about 41.6 th euro), which is although dif-ferent on a country’s regions account. Thusin Harjumaa the prices were close to onemillion crone (about 64.1 th euro) whereasin e.g.Yigeva the prices were down to 100 thcrone or 6.4 th euro. Almost ten-time diffe-rence is explained by Harjumaa’s proximityto the country’s capital where apartmentswere seemingly higher in prices than inother regions.
Main driving force behind Estoni-an citizens’ property acquisition activityhas been their general wellbeing growth,in particular in the capital, e.g. an avera-
ge month’s income (before tax) increas-ed last year by 8 per cent and reached9,712 crone (about 622 euro). People ha-ve become richer and so have the de-mand for property; consequent prices’growth followed. Construction compani-es were not able to satisfy constantlygrowing peoples’ property demands. Thelatter has affected the ever escalating le-vel of prices.
Certain blames for escalating pricescould be put on banks as citizens in growingnumbers could easily afford cheap mortga-ge credits. Probably the trend is going to beleveled up due to ECB’s interest rate incre-ase at the end of 2005.
In the first half of 2005 the priceincrease affected almost all apartments’types in the capital’s downtown and 3-be-droom apartment in the suburbs. During2004 the increased prices trend has beenevident for 3-bedroom apartments; du-ring 2005 an average price increase herewas 5-10 per cent. The price for twenty-years’ old apartments, although renova-ted, was about 1.3 mln crone, or 83.3 theuro; 2-bedrooms’ were available at a pri-ce increase of 5-7 per cent and an averagesuch apartment has been at the level of75 th euro.
Property experts have already noti-ced that the prices have been closely tiedup with the property’s quality: thus renova-ted apartments’ prices in old bloc-typehouses have reached the level of new apart-ments in the suburbs, according to PjarleSepping, expert from real estate agencyPindi Kinnisvara. This agency’s market ac-counts are somehow different from that oftheir competitors. Thus, according to P. Sep-ping, apartment prices in Lasnamaa, thebiggest Tallinn “sleeping region” have incre-ased by 20 per cent, and by 10-15 per centin other suburbs. Constant growth of priceshas created a specific situation when peo-ple wishing to sell their apartments stillkept hold of them expecting a further risein prices. “In reality, said P. Sepping, theapartment price can actually increase du-ring a couple of weeks by tens of crone”. Adrive for profit instigated the demand; qu-ite often those wishing to find their ownproperty were forced to pay unreasonablyhigh prices. “Practically all sort of propertyentering the market is sold out in no time”,concluded Sepping.
Another phenomenon can be noti-ced: people do not sell their old apartmentwith the aim of buying a new one; they donot have to: favorable mortgages allow fortaking another bank loan covering the lastpayments in the previous credit and the oldapartment serves as collateral. Quite inte-resting that people are not afraid of takingmore credits as they are getting used to be-lieve in growing profits from renting the oldapartments.
The Baltic Course — Winter 200622 Real Estate www.baltkurs.com
By Dmitrij KulikovEstonia
Property prices have been increasing in the country during the whole period of2005. Most vividly the process is reflected in Tallinn and its suburbs where more peo�ple reside with higher income, in comparison to other country’s regions.
It has to be said that some alarmingsignals have appeared in the market: due toa restricted supply (and citizens’ lowpurchasing power) the price growth stagna-ted. So far the owners of suburban propertyhave been mostly affected — in drive forprofit they kept the second apartment. Sep-ping argued: “Now these people agree thatit was not presently so simple to rent out anapartment, on the other hand, it’s becomingtoo complicated to keep two houses”. Pres-ently Euribor index (euro interbank offeredrate — ed.) has increased, communal pay-ments will increase soon, all that would for-ce people to sell second houses.
EXPERTS’ PREDICTIONS Most of them stick to scenario similar
to the situation on the market existed befo-re the country joined the EU, the periodwhen people thought that they would makereal profits on their property. It did not hap-pen that way, although, and expected profitsacquired only those who did not “wait forthe EU to come”. In fact, the prices stagna-ted after the country joined the Union; insome regions the prices went drasticallydown. One thing is probably clear, expertssay, sooner or later the “property races” isgoing to an end.
According to experts the marketstabilization will occur in the coming cou-ple of years, although on a yearly basis therate of increase on apartment prices will
proceed at 10 per cent. The number of ro-oms will not affect the price. Thereforethe demand for old-style apartments willsustain and this property would keep highliquidity. The “disposal time” for suchapartments, i.e. from the moment of ad-vertising to actual changing hands wouldbe within 1 to 4 months. Prices’ differenceon apartments in old houses will sustaintoo; the general house condition and theneed for renovation will be decisive fac-tors in price formation. On top of this,apartments in downtown will be muchmore expensive in comparison to apart-ments in new constructions.
FUTURE PROJECTS The market of new and renovated
apartments has reached its high point: in thefirst half of 2005 about 1900 apartments hadbeen sold. Experts acknowledge that allnew construction projects are deemed to besuccessful with the greatest need for apart-ments with about 19 th crone per sq m(about 1217 euro). And again, growing de-mand pulled prices up: on a yearly basis therate of growth reached 10-15 per cent andabout 20 per cent in the Tallinn’s center.
Taking into account such factors asdemand, growth in construction materials’prices and that of property in general, ex-perts reveal a moderate growth rate in themarket of about 5-10 per cent. The numberof people not covered by any form ofmortgage loan has reduced; the fact thatwill instigate the supply. The rate of com-pleted deals will be reduced too and fixedat the level of about 3 th a month. Somesuggest that “exclusive-type” apartmentsand those with several bedrooms will bedifficult to sell. So the message to con-struction companies, as well as for real-tors, is to concentrate on apartment hous-es with an average level of prices per sq min Tallinn’s suburbs or regions next to thecountry’s capital.
OFFICE�APARTMENTS MOVE TO SUBURBS
Most in demand are office facilitiesin the country’s capital and adjacent terri-tories; almost all available houses are occu-pied or sold out and only 5-6 per cent is stillvacant. Office spaces from 20 to 70 sq m areof highest demand in the market. The own-ers of big apartments would rather splitthem up into smaller parts and rent themout. Recent rental prices have been kept ata constant level: newly constructed office(so called A-class offices) would be quitenaturally higher in value and reach230 crone per sq m a month (14.7 euro).
Less attractive old-style apartments willcost from 130 crone (8.3 euro) to 160 crone(10.2 euro) sq m per month.
Office places’ market in Tallinn haskept attracting foreign investors; direct in-vestments into the market are growing eachyear. Although some new trends haveemerged: except Tallinn, some other citiesin the country have been of interest to re-ach foreigners.Adequate flow of foreign in-vestments has allowed for modern-styleconstructions there, which were not quitecheap after all.
At the same time experts do not envi-sage significant changes in office apart-ment’s market. The trend here is towardsmoving industrial and office premises outsi-de the cities where it’s easy to solve trans-portation problems. Quite remarkable, theprices for such premises are not much lowerthan in the country’s capital. One of the ex-planations for that were big developers’ ex-pectations relying on business’ moving outof the city.As soon as presently there are se-veral such “outside-the-city” constructionprojects undertakings wishing to find a pla-ce for new office have numerous options tochose from; the basic criteria is still the pri-ce and regions’ reputation.
MARKET PARTICIPANTS It has to be acknowledged that some
of the real estate market participants havemade great impact on national economy.There are 230 property companies in natio-nal register, having their own web sites; mo-re or less influential company has to installits own internet-site.
As to “success stories”, YIT EhitusCompany (former FKSM) dealing with civildesign, construction projects and their com-mercial application has strongly enforced itsposition among participants in the market.In Aripaev Daily’s “Top 100 companies inEstonia in 2005”, the YIT Ehitus Company isamong the first ten climbing recently from23rd place to the 9th.
It can be concluded that constructioncompanies have solid positions among suc-cessful companies in the market. That cannot be said about companies that assist inselling property: thus a big Estonian Balticproperty agency Arco Vara stepped downfrom the 9th place among the “Top-100” tothe 28th place.
Aivar Bersin is regarded the biggestproperty owner in Estonia; he heads a realestate agency Vestman Grupp which is in-volved in selling, acquiring property, its ad-ministration and development. His agencyowns land and forest plots totally accoun-ting to about 326 mln crone. •
23The Baltic Course — Winter 2006 Real Estatewww.baltkurs.com
10 BEST PROPERTY COMPANIES 1. Maarjamae Maja AS2. Prisma Kinnisvarade AS3. Arco Vara As4. Ulemiste City AS5. SRV Kinnisvara AS6. Kodumajagrupi AS7. Vestmann Grupp AS8. KC Grupp AS9. Kuldkuu Investeeringute AS10. Kaarsilla Kinnisvara AS
PROFIT RATING, TH ЕЕК1. Arco Vara AS — 1000002. Vestmann Grupp AS — 796203. E.L.L. Kinnisvara AS — 767604. Tallinna Kaubamaja Kinnisvara AS — 704985. Rocca Al Mare Kaubanduskeskuse AS — 39872Source: Aripaev.
GENERAL TURNOVER RATING, TH ЕЕК1. Arco Vara AS — 3500002. Riigi Kinnisvara — 1577423. Uuemoisa Invest AS — 1552554. E.L.L. Kinnisvara — 1268805. KC Grupp AS — 110480
The Baltic Course — Winter 2006
BC: Mr. Markov, how would you assess the present propertymarket state-of-the art in Latvia and other Baltic States?
VM: Let me just start with the law of physics which postulatesthat while having different pressures in various parts of the surfacewe assume starting unity formation, the pressures will be leveling upwith occurrence of strong winds; the greater the pressure, thestronger the winds.The same situation has happened in the propertymarket: due to very quick integration of our countries intoEuropean community, the consequential “leveling up” of prices isoccurring very quickly, too. We can say that the market is, so to say,presently put before the horse. Although property value leveling uphas not been complete yet, the leveling tempo was really great. Thisprocess is going on quicker than the leveling up of incomes.
The main explanation for the situation we have is hiddenbehind the fact that some property market’s segments have becomeinternational, e.g. quite attractive to foreign investors; these areregions in Riga downtown and “old city”, Jurmala territories next tothe sea, etc. These regions have quicker “integrated” into interna-tional market rules; as a result investors were acquiring propertythere on price levels which were unaffordable for Latvians. Thisprocess somehow instigated local buyers fearing further priceincrease. Such customers’ activity forced banks constantly reducinginterest rates: these two aspects have been major factors behindprice increase during last years.
Great lack of balance could be seen presently betweenlocal population purchasing capacity and property prices’ levels.International property companies’ profits has drasticallyreduced, the market ceased to be as attractive as it was 2-3 yearsago. As a result, second half of 2005 has been a period of stabi-lization both for the international and local participants in allproperty market’s sectors.
BC: Property prices in the Baltic States are completely outof any proportion as to the level of the old 15 EU members. Howdo you explain such a disbalance?
VM: If we take, for example, German apartment prices that arelower than prices in Riga, we have to take into consideration greaterunemployment level in Eastern Germany which drags property mar-ket into depression. At the same time, an average German workerwith a medium salary can afford to buy 70-80 sq m apartment within4-5 years. A Latvian worker would need 12-15 years, keeping in mindthat he puts aside all what he earns. On the other hand, constructionactivity in Germany is lower that in Latvia and consequently there areless contract deals. It is clear for Germans that changing apartmentsat the moment of high unemployment is a risky affair.
It has to be said that property market is a very “emotionalmarket”; and not all its factors’ development can be explained bythe laws of economics; therefore great emphasis is to be paid tosocial psychology. Our people use un-proportionally much greater
part of their budget on better living conditions than people in theWest. In particular, young people have a constant desire to live bet-ter than their parents did. At the same time people want to live innew apartments and not in those out-dated construction blocks.
BC: Could you explain the sources behind property marketdevelopment: what part of it is coming from the inner-sources, andwhich one is from outside economy sectors; which are these sectors?
VM: Property market is not the field that can develop basedsolely on its own resources; it is very investment hungry economysector. Even companies with a high level of return can not developbig construction projects based on their own resources. In thisregard, property sector and banks are closest partners; these are twoclosely interconnected sectors and we can witness presently appear-ance of special international segments of such “integrated” market.No wander that property market analysis often starts with the creditmarket assessments. Therefore for Latvian banks which one of thefirst have become quite international players, it’s not a big problemto attract financial resources from international banks.
As to other economy sectors involved in property marketdevelopment, I have to say that during last 3 years people from var-ious economy structures joined our sector.The reasons for that havebeen different: stagnation of other economy sectors, low level ofprofits, etc. For example, some people left retail market as returnsdegraded due to greater global trade networks; people from crude-oil transit joined property market as a result of reduced level of oil-transit. This is how people with their resources, initiatives and busi-ness management potentials showed up in the property market.
BC: About hundred years ago rental-houses’ construction inLatvia went hand-in-hand with industrial development. Whatfacilities could be used in order to stimulate commercial and livingapartments in future?
VM: That depends on various political and macro-economicfactors which are difficult to predict. Latvia, unfortunately, can notyet find its place in the European division of labour market. Due tocountry’s geographical position, it could be transit of both cargoesand financial instruments. It’s really a pity that Latvia does notdevelop transit as a strategic development sector. It has not hap-pened due to, I would say, political awkwardness in apprehension ofwhat we are going to make for our country in order to create a solid
24 Real Estate www.baltkurs.com
Vadim Markov: "The Market is Presently Put before the Horse" By Olga Pavuk
Latvian NIRA Fonds Company's director Vadim Markovhas been working on the property market since its forma�tion in the country. As FIABCI�Latvija president, which isthe Latvian branch of the International Federation ofProperty Experts, he is regarded as most respected profes�sional in the property field.
VADIM MARKOV: Professional criteria are behind the longstanding and successful company's activity.
political ground for our strategic business development.Unfortunately, we do not have such a program.
The same picture is with the banking sector, where we areloosing tremendous opportunities doing something against thegrain, as well as implementing others’ directives and enriching inthis way other countries. I think there are serious doubts as to thesources for our prospective economic development. The existenceof small countries surrounded by plenty of others is quite specific.Even small investments but made on the right track could make astrong impetus towards strategic lines in economic development.But it is a strongly political issue and without its resolution we’llhave stagnation on the property market.
BC: About 6 per cent of national GDP is made in the prop-erty sector; what are the potentials of the market to your opinion?
VM: Potentials are still there, although the total growthcapacities in all market segments have greatly outperformed therates of profits. Next step in this market development will be con-nected, first of all, with the growth of people’s and corporate units’income (as consumers on property market) rather than with theprocess of leveling up consumer prices with that of the Europeanlevel. This process will be going on at a slower pace than during pre-vious years.
BC: There are more that 2 thousand firms dealing withproperty issues in the Latvian Company Register; is it too much orquite a normal figure? Which companies could be regarded as pro-fessionals in the market; what are professional criteria for devel-opers and realtors?
VM: There is a tremendous dynamics on the market; in particular,during the last 3 years a lot of new people joined the market. Some showup, others disappear after a couple of deals. On one side, it seems thatthere are too many players on the market,but for the country in transitionit is quite a normal process. I think that in the coming 2-3 years due toincreased competition on the market the number of those involved willbecome stable. To develop and sustain professional criteria such asprospective management tools’ implementation, increasing the level ofservice, as well as quality and quantity of development projects, this isbecoming a long-standing and successful path for any company to survive.
Quite serious changes have occurred on the developers’ mar-ket: some strong international players have appeared (e.g. Israel’sBSL); NCC has become more active; there are some strong localdevelopers as well. But as the sum-total, there are not more than tenstrong developers on Latvian market. As to civil construction, weexpect consolidation in the near future; only strong companies willstay on the market, those which ability to survive is greater than thatof small firms in case of difficulties with selling properties.
The leveling-up process is going on among brokers’ as well,e.g. already at present about 5-10 companies cover the largest shareof the market. All other kind of service, such as consulting, marketevaluation, etc. are becoming auxiliary for big companies, as a rule.
BC: What is, to your mind, the share of foreign capital in themarket? Has a foreign capital far-stretched perspective here?
VM: In the sector of big and complicated projects the share offoreign companies is dominating, including Lithuanian companies.Most of investments here are foreign; so to say, market of big con-struction projects is the market where we can really feel global trends.
As to the business property sector, foreign capital share is rel-atively small; here the pressure from economic situation in Westerncountries prevail where there are still plenty of vacant places forrent with rather low rental prices.
On the civil apartment market where previously mostly localcompanies were working, great changes have occurred and foreigncompanies have bought some big construction projects.
Then, to the issues of far-stretched foreign investment projects:for us 7-years’ construction project is already a long-standing one; forforeigners — it’s just peanuts.For verification it’s enough to have a lookat the center of Riga, for example where foreigners are already tryingto get rid of their properties and invest in land acquisition instead.
For the biggest top-companies wishing to invest around 100mln euro is rather difficult to find in the Baltics attractive con-struction projects (for us a 30-50 mln euro project is already a bigone). There are just a few projects — about five or so — worth 50and more mln euro. Besides, the rate of profit has reduced whilepenetration on the market becomes expensive; therefore the num-ber of these investors on the Baltic market is limited. The biggestmarket in Europe is that of the United Kingdom covering 60-65per cent of all big European foreign investments.
Small countries are too difficult for big players to operate; theBaltic market is already covered by big Scandinavian companies.They have been mostly interested in commercial property market.Apartment market in the Baltics is still too small for serious players.
BC: What is a foreigner’s profile in Latvian, as well as that ofother Baltic States, property market? What are the motives andinclinations of foreign investors acquiring property here?
VM: The motives are clear enough — to get profits which arehigher than in Europe. Presently expected 5-6 per cent rate of prof-its is not any more attractive for them. The European rate of returnlevel is just about 1 per cent lower but at the same time expensesincurred along market penetration are considerably less.
The foreigners interested in the Baltic property marketcould be divided into three groups: first, private persons buyingapartments and land plots; these are generally small investors.Second, investment companies ready to invest into a projectabout 5-10 mln euro; they are medium on our account and smallaccording to European scale. The third group is that of big foreigninvestment funds but their numbers are really quite small. •
25The Baltic Course — Winter 2006 Real Estatewww.baltkurs.com
The Baltic Course — Winter 2006
A large number of real estate fundrepresentatives, developers, and privateinvestors kept inquiring about variousaspects of investing into the region: fromthe general state of the market and bankfinancing to economics of the deals anddevelopment of the mortgage market.
All three conferences saw numerousdiscussions about opportunities, difficultiesand particularities of investing in the RealEstate Market in the Baltics.
BALTICS — THE NEW LAND OF OPPORTUNITIES
After the successes achieved by for-eign investors in the Czech Republic,Poland and Hungry the Baltic Regionbecomes the next logical choice for prop-erty investment. In 2005 the Baltics wit-nessed a stable developing real estate mar-ket with rising prices and demand for pri-mary and secondary residential premisesand a sharp increase in availability of mort-gage financing. For the coming year analystspredict a continuing increase in prices,although not as steep as in the last couple ofyears, and a further development of localeconomic activity. In short, the currentBaltic market presents an excellent windowof opportunity for an interesting deal-mak-ing. Yet, while the region has the necessaryinfrastructure in place for forming success-ful partnerships, certain obstacles at timesforce investors choose other countries whenmaking an investment.
SCARCITY OF LARGE SCALE PROJECTSAccording to a number of investors,
one of the main difficulties in entering theBaltics is the project’s size and the requiredinvestment. The local market rarely offersan opportunity to invest in large-scaledevelopments and the overhead of manymajor foreign funds and financial institu-tions do not justify an investment in smallerprojects. In addition, the time spent onlocating partners, due-diligence and assem-bling the financing is more or less identicalfor small and large projects. To solve this,
our Company, when working with foreigninvestors offers an opportunity to co-investin several projects at the same time.Currently, we are involved in developingseveral mixed-use projects in the city centre,where we offered several foreign funds toco-invest capital across the properties.
FINDING THE RIGHT LOCAL PARTNERSAnother difficulty according to west-
ern investors is finding the right local part-ners: from developers and brokerage com-panies to contractors and consultants. Sincethe local market is still in the developingstage, the brands recognizable outside theregion haven’t been established yet. Oftenforeign partners are not able to check thetransparency of the local developers andthe quality of services offered or the profes-sionalism of local brokerage and consultingfirms. In short, the communication platformis missing which would bring investors anddevelopers to the same table. To solve thisproblem, our Company with a number ofother developers has recently establishedEastern European Real Estate Developers& Investors Council which will be involvedin facilitating the dialogue between theinvestors and developers.
In addition to the scarcity of large-scale projects and transparency of the localpartners, there are other difficulties thatexist in the eyes of the foreign partners.These include ever increasing scarcity ofbuilders, overstretched with work archi-tects, long and complicated buildingapproval processes.
THE INVESTORS INTEREST IS GROWINGEven though the Baltic market pres-
ents a number of obstacles upon entering,the region remains to be of a growing inter-est to investors. One is not able to single outthe most preferable by investors type of areal estate; all classes of real estate remainto be of an interest, ranging from residentialdevelopments and office buildings to indus-trial parks, golf-clubs and retail centers. Inaddition, many foreign bank representatives
were inquiring about the state of the PPP(Private Public Partnerships) market andthe possibility to finance such projects.
The time will show how the BalticReal Estate market will develop. Buttoday it presents profitable opportuni-ties and everyday changing dynamics toparticipants. •
26 Real Estate www.baltkurs.com
By Helen RomanovaManaging Director of BKT Real Estate Development, Latvia
After my recent visit to the three Real Estate Conferences in London: “UBSGlobal Real Estate Conference”,”European Real Estate Opportunity & Private FundInvesting” and “British�Latvian Chamber of Commerce Real Estate Seminar” it wasimpossible not to notice a heighten interest of foreign investors in the Baltic Region.
HELEN ROMANOVA: The Baltic Regionbecomes the next logical choice for property investment.
Our main aims are: • Creation and implementation for our clients most optimalgoods delivery chains regarding various taxation, customsand transport specifics, including subsequent service control; • All sorts of supplementing service provision, i.e. financial,legal, insurance, accountancy, repair etc.
Our policy and purpose: • Complex service is more efficient and less expensive
Our group structure: • Consulting companies — already 10 years in the market — providing: • Information and legal support; representation in Latvia,support and advice in finding business partners. • Legal, accountancy and financial services • Assistance in visa-support activity • Insurance broker: • All kind of insurance on the EU territory, compulsory insur-ance in RU, disputes resolution, independent expert assess-ment, technical expert reviews, etc. • Transport-logistics division: • International goods transport including all types sea andrailway goods delivery, as well as export-import logisticswithin the EU territory, as well as that of the Baltic States, CISand so on. • Customs terminal service: • Custom clearinghouses and custom brokers licensed toprocessing necessary documents and holding all kind ofgoods including food-stuff and excise goods; provision of allkind of brokers' services and guarantees • All sorts of custom documents for internal and transitgoods with respect to goods' "individual specifics" • Provision of all sorts and sizes of heated and non-heatedclearing-houses, as well as open parking lots • Provision of all kinds of loading and un-loading operations,including sorting-out performances • Containers' storage facilities • There is a division of national Latvian Custom Serviceon our custom terminal territory
Industrial ParkAVE TRANS GROUP has acquired an industrial park next
to Riga Commercial Port container terminal and ourclients can rent necessary facilities just 7 minutes from Riga down-town. The park can provide as well the followingservices: • General guarded parking spaces of up to 12 ha • Clearinghouse- and industrial facilities
of up to 18 thousand sq.m • Office apartments (class B & C) of 3 200 sq. m • Free parking lot for passengers' cars • Parking lot for trucks • A branch of a Bank
Transport Section: We have our own transportation companies including both international road transport firms in Latvia (Riga) and Russia (Moscow) • Our transport facilities fulfill all Euro-standards'requirements • We provide CMR-type insurance • We have due experience in different cargo-trade routs(since Sovtransauto-time) • We have qualified drivers' staff with adequate knowledgeand experience
Auto-repair works' Section: • We provide complex repair works for trucks, busses andother heavy vehicles, including oil and wheels' checks, mailing and etc. • We supply clients with auto spare parts • We have car-wash service
and disinfection unit for trucks • In our shop one can buy various spare-parts,
instruments and worker-dress • We can help in all sorts of goods' re-loading • We can assist in buying and selling used cars
Logistic operator rendering a unique complex of services
Market ReviewThe Baltic Course — Winter 2006
Business tourism generally has a long history, although as anindependent and highly profitable business this kind of tourismappeared in Europe and the USA only recently, in 1970-80s.Already in1990s this sector of tourism activity has acquired prestigious status asone of the most attractive sectors both in travel and tourism business.
Generally, the role of organizers in such travels belongs tofirms and companies wishing to make seminar and congressesabroad, as well as firms that arrange holiday-trips to their employ-ees. Some corporate clients choose Eastern European cities andBaltic countries as destinations for such business arrangements.One of additional “regional” attractiveness is high level of travelers’security, whereas in various parts of the world the threat of terroristattacks is not excluded.
LATVIA: BUSINESS TOURISM AS AN IMPETUS FOR ECONOMIC GROWTH
Two major directions can be distinguished presently inLatvian business tourism (BT), i.e. a) organizing seminars and con-ferences, and b) “incentive-motivational” tour-programs foremployees. According to growing market, new hotels have been
constructed in the country; the existing ones have been enlargingtheir accommodation places.
One can say that Business Travel and Tourism is becoming themost dynamic sphere of modern tourism; often an English abbrevia-tion is used to cover all major BT’s ingredients — MICE (Meetings,Incentives, Conferences, Exhibitions). Main idea behind such com-panies’ trips is to convene abroad seminars and/or provide incentivetrips for employees. As a final destination, the countries of EasternEurope and the Baltic States, including Latvia, are often chosen.
Some years ago BT was regarded by many as activity sphere forthose tourist companies and hotels wishing to make profits. Presentlythis attitude is changing giving place to much broader idea which cansupport greater potential development in Latvian economy.
Experts say that BT in Latvia started to develop activelysome 3-4 years ago: according to Latvian Hotel Association, in 2005about 3,1 mln tourists visited Latvia and among them 20 per centwere business tourists.
Uldis Vitolinsh, Latvian Tourism Development Agency’sdirector said to BC: “Business tourism is the trend that can help tosurvive all big and small hotels during out-of-season’s periods”. It’swell-known that high-season in tourism lasts in Baltics 4-5 months,usually from May to September. “During that time about 80-90 percent of hotel rooms are booked; the rest of the year the rooms areoccupied by some 40 per cent”, he added. Attracting business touristscan help to solve the problem. A right step in the right direction wasdone in Riga’s Congress Bureau — Inspiration Riga which wasfunded by the state, municipal bodies and private capital. Such a mul-tiple establishment composition has been required because seriousinternational or European trips’ preparation needs several years, asa rule from 2 to 7 years, and all actions are planed much ahead oftime.Without a proper coordinator representing Latvian interests oninternational market, adds U.Vitolinsh, it is almost impossible to findinteresting business projects. Such opportunities have appeared nowand therefore Latvian MICE can have big perspectives.
Inspiration Riga’s executive director, Igor Klapenkovs in aninterview to BC acknowledged that Business Travel is really a good
34 Business & Travel www.baltkurs.com
Bright Future for Business Travel MarketBy Olga Pavuk, Anzhela RzhishchevaBy Tatyana KomorskayaBy Dmitrij Kulikov
Business�travel market development is closely connected with the availability in the three Baltic States of first�class hotels.For example there are more hotels in Lithuania than in Latvia; besides, there are many places in the former to arrange all sorts ofbusiness tours. The number of hotels in Estonia is quite comparable with that of Latvia although in the former there are more hotelrooms. In comparison to Latvia, there are more “economy�class” hotels, those of bed & breakfast�type and small guest�houses inEstonia. The demand for two�three�stars’ hotels in the Baltic States is both constant and constantly growing as these relativelycheap hotels are in great demand in the travelers’ market. In order to develop economic activity in the Baltics adequate businesstourism network is designed to play a decisive and radical role.
TOP�10 CONFERENCE�CENTERS IN LATVIAN HOTELS,IN HALLS AND SQ. MRank Hotel City Number
of halls Sq. m
1 Reval Hotel Latvija Riga 13 2070 2 Baltic Beach Hotel Jurmala 13 11453 Maritim Park Hotel Riga 10 2018 4 Radisson SAS Daugava Riga 12 1095 5 Konventa seta Riga 5 3346 Reval Hotel Ridzene Riga 7 330 7 Park Hotel Latgola Daugavpils 5 3238 Hotel de Rome Riga 3 262 9 Hotel Bergs Riga 2 182 10 Amrita Liepaja 1 76Source: Latvian Hotel & Restaurant Association.
business direction: “an average business tourist’s visit to a foreigncountry lasts 2-3 days whereas regular tourist’s — 1-7 days. Besides,business guests spend 3 times more in another country than otherkind of tourists, he added.
Business tourism is, in fact, gaining momentum in Latvia: eachmonth about 408 different conferences and meetings take place inRiga and Jurmala; some 10,8 th people take part in these events.About 42 per cent of all conferences having international status and54 per cent business tourists use local companies’ services. In com-parison to 2004 the number of business tours in 2005 increased by52 per cent, their duration increased by 27 per cent and the numberof participants increased by 21 per cent.
According to Riga Information and Coordination TourismCenter there were 45 hotels in Riga with 8693 beds in 2004; at theend of 2005 there were 66 hotels and the number of beds increasedto about 10.5 thousand. In 2006 it is planned to build 10 new hotelsin Riga with 1300 rooms.
The biggest hotel constructed in Riga in 2005 was DominaInn Riga at Pulkveza Brieza Street with 248 rooms. About 100rooms are in the new hotel Profitcamp on Tetra Street, in Tomohotel on Raunas Street and in Kolonna hotel on Tirgonu Street.
The biggest among new hotels in 2006 is a hotel on BrivibasStreet with 441 rooms. Some other hotels are expected to appear inRiga in 2006: Island on Kipsala with 350 rooms, after renovation workssome 200 rooms will appear in Reval Hotel Latvija. It’s participation inBaltic market the company Reval Hotels intends to strengthen by con-structing a new hotel in Riga down-town at Elizabets Street.
Latvian Hotel & Restaurant Association’s executive director,Santa Boka told BC that most of the conference facilities, more thananywhere else in the country, are taking place in Riga and Jurmala andin the following four hotels: Reval Hotel Latvija, Baltic Beach Hotel,Maritim Park Hotel and Radisson SAS Daugava (See Table 1). Thereare, of course conference-centers’ facilities in other hotels as well, e.g.Reval Hotel Ridzene, Hotel de Rome, Hotel Bergs. Conference-halls canaccommodate from 50 to 500 participants. Renting fees are from 7 to150 lats per hour depending on the level of comfort. In other hotelssome 20 to 100 people can be provided with conference’s facilities.
As S.Boka reminded, so-called motivational or incentive busi-ness tourism is becoming popular recently; such kind of tourismdeals with new products presentation by companies as well as a sortof “encouragement” tours for company’s employees. Quite popularbecoming “combined-tour- programs”, i.e. 1-2 days of conference anda couple of day’s entertainment. In the latter case tourists visit notonly historical and cultural sites in Riga but in other Latvian citiesas well.This idea is not foreign to Latvian companies, e.g. quite oftenthey arrange such incentive programs for employees on Latvian ter-ritory using numerous old castles’ facilities in Rundale, Mazotne, aswell as in other historical places in Venstpils, Jaunpils, Jaunmoky, etc.There are private tourist arrangements for foreign tourists as wellcombining business and holiday; in this way tourists can prolongtheir stay in the country for a couple of more days.
Experts in tourism sector acknowledge that such big events asWorld ice-hockey tournament and NATO-summit can be a good lit-mus test. Rather on hotels, much depends on government policy inattracting tourists and making, so to say “an attractive Latvian image”abroad; and on transport companies (e.g. air companies arranging dis-count tickets and new ferry rout from Stockholm to Riga). In order toattract more foreign tourists in Latvia some active efforts are neededto advertise various conferences, forums and seminars.
As Mr. Igor Klapenkovs explained, serious attention shall bepaid to renovation works in Latvian House of Congress which pro-vides accommodation for 1200 people. Among major disadvantages
in this building are the following factors: lack of adequate infra-structure in order to allow conference work in different sectionssimultaneously, and good kitchen facilities. There is a great need inconstruction a new Congress Center in Latvia which could accom-modate about 5 th guests. Important that such Center is suppliedwith modern infrastructure facilities. Only in this way our countrycan claim to be a competitive and attractive business-tours’ destina-tion for European and international companies.
LITHUANIA: BUSINESS TOURISM HAS A GOOD SIGN OF PERSPECTIVE
According to country’s statistic department about one milliontourists visited Lithuania in 2004. Experts predict that a yearlygrowth by 30 per cent; and each second tourist visited country onbusiness purpose.
This is precisely that kind of modern tourist the whole sphere oftourist incoming and outcoming as well as hotels, restaurants and busi-ness forums are concentrated upon. Besides a direct respect for busi-ness as such there is a good share of commercial advantages. As isknown, an average tourist in Lithuania spends during a short visitabout 5 th litas, whereas a “regular” tourist only 957 litas.The 2004 sta-tistics could be too presumptuous but it is not too far from the truth.
An explanation of Vilnius’ popularity among business repre-sentatives in the world lies in various backgrounds, e.g. the country’scapital is an active member of European conference-cities’ pool andis represented on all internet-sites with all pertinent informationabout business tours in Lithuania. Quite natural that business peoplethroughout the world would like to have a look at the place and often
35The Baltic Course — Winter 2006 Business & Travel www.baltkurs.com
The Baltic Course — Winter 2006
chose it as their meeting’s spot. The following is just an indication ofspecial seminars arranged in Lithuania recently: cardio-surgeons andinfectious treatments, French utility specialists, arbitration expertsfrom Baltic countries, Esperanto scientists (the Vilnius city council’stourist administration issues a special tourist guide in Esperanto)...
A special magazine is published for people in businesstourism and Vilnius city administration issues regularly MICE’sbrochures in European languages for these tourists.
Last year at a world tourist conference in Barcelona country’sbusiness tours’ companies made a common exhibition presentation,which was a great success to be repeated this year, e.g. Lithuaniantourist association will take part in IMEX exhibition in Frankfurt.Thelatter is the most important special exhibition in the field of so-calledstimulating tourism. The following Lithuanian tourist companies willtake part in IMEX: Lietuvos turizmo birza, Delta Tours,West ekspress,Baltic-clipper, Lietuviрkos atostogos, Baltic Saitas, Kelioniu laikas.
There are 10 regional companies for organizing conferences;among them are the following: AAA Wrislit,American Express TravelServices, Baltic Clipper, Baltic Travel Group Ltd, Baltijos keliai, Visusplenus, etc. These companies offer the whole set of business tour req-uisites. In this regard Visus Plenus’ director, Patras Naprushis said(the company is a member of European Conference Association andis engaged in organizing business tours) that they deal both with peo-ple that wanted either a hall for the conference or/and the “wholepack”, i.e. from calculating tour expenses and hotel reservations toentertainment program following business arrangements.
The choice of the hall depends on clients’ requirements -somelike it in the city center others prefer suburbs. Farmers’ guest houses
are becoming quite popular recently and the request for theseplaces occupies good share of business conferences.
Most popular conference-halls are situated in the followinghotels: Reval Hotel Lietuva, Le Meridien Villon, Radisson SASAstorija, Holiday Inn. (See Table 2). The price for renting a halldepend on the hall’s capacity and its rank; an average hall’s rent forhalf a day would be around 300 litas (for a small one) and up to6,600 litas for a ha; for about 1 thousand people. The price for thewhole day conference would be from 550 litas to 11 thousand litas.
In some hotels there are certain specific attractive features,thus in Le Meridien Villon Vilnius besides beautiful natural sur-roundings there is a huge health center with a swimming pool,saunas, jacuzzis, sport complex and aerobics’ halls. In another hotelReval Hotel Lietuva besides wonderful adjacent city park peoplecan enjoy a splendid view over the city from a roof restaurant.
Even if conferences are not organized through special busi-ness-tour companies and made directly through hotel reservationservice, guests can be pretty sure that they can get all the necessaryservice including guides, interpreters, car rent, etc.
As was mentioned by Mr P. Naprushis, wide-spread opinionthat guests after the conference would strive for entertainmenttours was greatly exaggerated. Only about 20 per cent would choosethat path after the conference, the rest would follow their plans.Probably the only different groups are the businessmen from theUSA and Japan; making the long way to the Baltics they would liketo participate both in Vilnius guide-tours and those through Latviaand Estonia. According to P. Naprushis, this segment of touristsphere is growing steadily as well as that of tourist exhibitions.
It is quite interesting to note that there are only 7 Lithuaniancompanies that organize big dinner parties in the country. Butaccording to national statistics department, this tourist sector aloneearned in 2004 about 824 mln litas. No doubt the things are becom-ing really good in hotel and restaurant business!
Vilnius City authorities are trying hard to make the city bothan attractive for tourists place and popular business center, as well.There are totally 219 hotels in Lithuania which can accommodatemore that 5,300 guests.
ESTONIA: CONFERENCE TOURISM MADE A BREAK The reason for such a conclusion is simple — the country
lacks adequate infrastructure. In 2004 the country visited 1.37 mlntourists and only 5 per cent (about 63 thousand) came in order toparticipate in a seminar, conference or exhibition. In 2005 the sit-uation with total number of tourists was not much better althoughthe number of business-tourists reduced by 5 thousand to57.5 thousand. In comparison to the previous year the picture in2004 was pretty good as the number of business tourists increased
36 Business & Travel www.baltkurs.com
TOP�10 CONFERENCE�CENTERS IN VILNIUS HOTELS
Rank Name Numberof halls
Main halls’capacity,
in persons1 Le Meridien Villon Vilnius 39 12002 Reval Hotel Lietuva 20 8003 Crowne Plaza Vilnius 8 5504 Karolina Hotel and Conference Centre 13 5505 Best Western Naujasis Vilnius 7 5006 Holiday Inn Vilnius 4 2507 Conti 4 2508 Sarunas Hotel 5 230
9Narutis Summit Hotels and Resorts,Baltpark Hotel Vilnius
3 200
10 Europa City Vilnius 4 150Source: European Conference Association.
OTHER PLACES TO ARRANGE CONFERENCES IN VILNIUS
Rank Name Numberof halls
Main halls’capacity,
in persons1 National opera and ballet theater 1 1130 2 Congress Hall 1 967 3 Teachers’ House 12 900 4 Litexpo Exhibition Center 7 500 5 Lithuanian National Drama Theater 2 467 6 City Hall 4 350 7 Forum Palace 5 230 8 Modern Art Center 5 200
9 National International relationsand Politics’ Institute
2 140
10 Vilnius International Airport 2 70 Source: European Conference Association.
BIGEST ESTONIAN COMPANIES IN BUSINESS�TOURISM MARKET
37
by 28 per cent. The situation commented tourism research coor-dinator, Mr. Piret Kallas from tourism department at NationalEntrepreneurship Center: increased flow of tourists can beexplained by general trends in tourism sector affected by thecountry’s entering the EU. Among other factors were free move-ment of people, low prices (in comparison to Western level),country’s popularity and intentions to see more.
Record number of guests visiting the country as business trav-elers in 2005 was reduced by 3 per cent, in comparison to 2004,which is explained by low quality of services in this tourism sector.During last years nothing has been done in Estonia in order to ren-ovate conference halls, exhibition premises and hotels orientedtowards this kind of tourists. According to experts, one of the maindifficulties was lack of a single big central conference-hall inEstonian capital; as a rule all business conferences are organized inbig hotels instead.
Senior expert on conference-tourism from Tourist Office inTallinn City Council Entrepreneurship Department, Meeli Jaaksoois of another opinion arguing that Tallinn provided for many goodinitiatives on business tourism market and organizing conferencesduring last years. For example, International organization ICCAacknowledged that Tallinn has become one of the most activelydeveloping cities in the world in this tourism sector with the rate ofgrowth reaching 50 per cent during last 10 years.
This progress could be achieved, first of all, due to closecooperation with European Federation of Conference Towns;second major step in the positive direction was broad Tallinncity’s advertising efforts organized in various European citieswhich definitely helped in attracting interest in visiting Tallinn.The city itself has definite prior tourist advantages, e.g. suitablegeographic position, adequate level of prices and quality; evenon professional level of services Estonian prices are markedlybelow that of European states. On top of this the city’s infra-structure is becoming more comfortable for convening variousbusiness meeting and seminars and besides already known hotel
names the number of international hotel network developing inEstonia is constantly growing.
Hotel representatives and business events’ organizers havecalculated that in 2003 about 4.2 thousand various conferences,meeting and seminars have been convened in Estonia and about200 thousand delegates participated. Out of that number, there wereabout 1.5 thousand international events and about 52 thousand for-eigners participated. Analysis has shown that the “conferences’ highseason” covers the months in the fall when about 900 conferenceshad been convened. The most popular theme for seminars has beeneconomics with 762 conferences.
Most of the conferences are convened in Tallinn and less oftenin Tarty and Pjarnu. Only 8 per cent of foreign conference-touristsvisited Tarty and 5 per cent — Pjarnu. The most popular places forconferences in Tallinn have been Reval Hotel Olumpia, Sokos HotelViru, Radisson SAS as well as Pirita TOP SPA Hotel. In Pjarnu thepopular place was Strand SPA & Conference Hotel and in Harjumaa— Laulasmaa SPA & Conference Hotel. Usually big tourists com-panies are main event-organizers, such as Estravel, Reisiekspert, ViaHansa Estonia, Raeturist.
Average conference-halls’ capacity is around 500 partici-pants, although some new facilities have to be envisaged: thus inJune the biggest ever in Estonian tourist history will take place, i.e.international youth business conference will be held in Estonia(JCI-Junior Chamber International) and more than a thousanddelegates is expected.
In an interview to BC, vice-president, Malle Pottsepp fromEstravel tourist company expressed his opinion about Estonianbusiness-tourism future:“Conference-tours’ business is presently onthe rise, although it is clearly seen that some countries, e.g. Hungaryand Czech Republic are trying to oust us from the market. The rea-son is simple, i.e. these countries have much better and favorablegeographic position as well as advanced tourist infrastructure. Onthe other hand, we can feel some tourist interest from Italy andother southern countries. Estonia has some advantages too, e.g.attractive prices and European level of services, and everything elseincluding sea and fine sand beaches. Probably our only biggest dis-advantage is that we lack a big conference hall. And nobody knowswhen it’s going to be constructed, if ever at all. Nobody wants totake such a big risk as such a construction is a long-standing project.If constructed such a hall could make good profits, but investorsprefer top develop some other tourist sectors, i.e. hotels, amusementparks, etc. with a much quicker rate of returns. Duet to these factorswe often loose clients who wanted both to live and hold conferencesat the same place”. •
The Baltic Course — Winter 2006 Business & Travel www.baltkurs.com
TOTAL NUMBER OF TOURISTS VISITING ESTONIA IN 2003�2005
BC: Latvian “section” in the Reval Hotels’ group providesthe largest business and conference opportunities in the Balticregion. What is your average statistical guest’s profile?
HV: It is true, we are the biggest in the Baltics. Our primaryguest flow is coming first of all from Finland, secondly fromGermany, then the UK and Estonia is on the fourth place followedby tourists from Sweden and Norway. It should be noted thattourists from Southern Europe are becoming our frequent guests,this is a relatively new and unconventional market for us. The mainreason for the significantly increased number of guests is Latvianand other Baltic States membership in the EU and improved airtransport connections. Our guests are those who want to explorenew destinations and businessmen who are looking for new oppor-tunities. These are main reasons they come to Latvia and that is whywe have a strong presence here.
BC: How is business tourism developing in Latvia? HV: An interesting shift in the present situation of the Reval
Hotel Latvija is that it is gradually becoming the largest conferenceand event centre in the Baltic States. Historically, it has been a 50/50situation of leisure tourists and business travelers. Now the situationhas changed as about 60 per cent of our guests are coming for busi-ness purposes, to participate in various conferences and seminarsduring spring and summer time, as well as staying over the weekend.Business travelers choose our hotel because we have the most mod-ern and sophisticated facilities to offer. We have 20 multifunctionalconference rooms and offer tailor-made solutions to various eventsand participants. In addition the hotel has restaurants, bars, nightclub, casino, fitness center and beauty salon to serve our guests. It isimportant to provide our guests with various entertainment options.
BC: And what are the hotels recent achievements and per-spectives?
HV: The main idea behind our hotel’s expansion was to pro-vide more space and facilities for increasing number of tourists anddifferent events. Of course, we would like to provide more opportu-nities for business as we are a upper mid-market hotel, but we donot have to forget about entertainment options.Travelers usually donot look for cheapest places to stay, they choose good facilities andservices both for pleasure and business. We want to help Latviabecome the most attractive tourist destination.
BC: What are further expansion direction plans for the hotel? HV: We are looking for good opportunities in and around the
Baltics, especially in Russia, i.e. in St. Petersburg and Moscow, aswell as in Ukraine. The strategy of our chain is further growth.
Another direction is completion of the Reval Hotel Latvijaexpansion with the goal to increase events and entertainment facil-ities (the latter will increase to about 1,700 sq m). Plus, we will have205 new guest rooms mostly in superior category and one more newfacility — indoor parking, a significant addition to the new part ofthe hotel.
BC: How do you regard the business-tourism opportunities inLatvia?
HV: One thing is certain — business people are more activearound the world finding new opportunities and we have to face thechallenge. On the other hand, these travelers play a very importantrole in balancing out the yearly occupancies as generally we arefully booked during the summer months but that could not be saidabout let’s say winter when our occupancy drops to around 50%.And then there are such “mega-events” as ice-hockey championshipin May which I am sure we can handle all right. It is a big challengefor us and as it is a huge promotion opportunity for Latvia, too.
BC: How do you see your hotel’s future in Riga? HV: After completion of our expansion and all renovation
works finished in April, 2006 we will be the most competitive andattractive hotel, conference and event centre for our guests andLatvian citizens. No wonder that Reval Hotel Latvija is sometimescalled a “blue dream”; it really is. •
38 Business & Travel www.baltkurs.com
Business and Entertainment Go Hand�in�Hand for our Hotel Guests
In interview with the BC correspondent Mr. HeikkiVanhanen, Reval Hotels country manager in Latvia and generalmanager of the Reval Hotel Latvija described the present andfuture of the hotel.
HEIKKI VANHANEN.
REVAL HOTEL LATVIJA (FROM APRIL, 2006) • The largest business and conference hotel in the Baltic region • Situated in the main Riga business district and shopping area,5 minutes walk of the scenic Old Town • 587 modern guestrooms • Conference & Event Centre offers: 20 conference rooms, 5 halls,3 business offices, meeting and banqueting space for up to 3000participants
REVAL HOTELS IN THE BALTICS • 3 countries — Latvia, Lithuania and Estonia • 7 hotels • 1894 hotel rooms • 62 conference rooms • 10 restaurants
ARE YOU LOOKING FOR SOMETHING SPECIAL?
F R RC
OUR - STAR HOTEL ESTAURANT ECREATION CENTREONFERENCE AND BANQUET FACILITIES
• •
AddressPhone fax e-mail
: Dik u pils, Dik u pagasts, Valmieras rajons, Latviaï ï: +371 4207480, : +371 4207485, : [email protected]
www.diklupils.lv
The Baltic Course — Winter 2006
LATVIA: FOREIGN WORKERS ARE NOT WELCOMED
Total number of people employed inLatvia is slightly over one million.At the endof 2005 there were 99,400 jobseekers in Lat-via which accounts for 8.7% of the economi-cally active population.According to LatvianNational Employment Agency’s statistics,young people aged 18-25 made up 13.7% ofall the unemployed registered in 2005; about8.5% of unemployed were those with a uni-versity degree. Numerous polls and studiesshow that over 80% of senior high schoolstudents do not associate their professionalfuture with Latvia and will be looking foremployment abroad.These figures cannot beperceived with anything but concern.
Latvian Prime Minister’s adviser on so-cial issues, Ilze Stobova argued that young-sters are very poorly informed about Latvianlabor market development and the number ofspecialists the country will need in future.“Se-nior schoolchildren still cherish their thoughtsabout careers as economists, lawyers orpsychologists, although we have a longstan-ding surplus of those specialists. At the sametime, school graduates know nothing aboutprofessions currently in high demand, such as
Considering growing outflow of wor-kers from Latvia, an issue of inviting the ne-eded labor force from such countries asRussia, Belarus or Ukraine may become ur-gent already in four-five years. Prime Mini-ster Aigars Kalvitis is convinced that thereisn’t solid ground presently for opening Lat-vian labor market to foreign workers: “sofar situation is not critical and it doesn’trequire opening our labor market now”.
His opponent, Augusts Brigmanis, de-puty chairman in Parliament’s committee forhuman rights and public affairs told recentlythe press that the committee had examined thesituation which might occur in Latvia in futureand concluded that theoretically Latvia mightneed workers from eastern countries, e.g. Rus-sia, Belarus and Ukraine in four years’ time.“The reasons for this are quite simple: on oneside, we have existing labor force’s ageing, onthe other, young people in growing numbersgoing abroad for work”, he said. But Mr.A. Brigmanis added that it is not clear yet “howmany foreign workers we would need, if any”.
At the same time, a number of con-struction experts think that as the demand for
construction workers is increasing the shorta-ge of qualified specialists and workers willingto work in Latvia will become more obviousAccording to figures from Latvian Office ofCitizenship and Migration Affairs (PMLP),some 40,000-50,000 Latvian residents areworking in the EU member states. ThePMLP said that 37,018 Latvian citizens and1,772 Latvia’s non-citizens work abroad. Assoon as not everyone has a work permit thetrue number of Latvians employed abroad istherefore higher, said PMLP’s deputy headMaira Roze. Experts have estimated that theactual number of Latvians working abroad isas high as 150,000! PMLP’s data shows that13,103 Latvians are officially employed in Ire-land and 9,150 in the United Kingdom.
Latvian residents mostly go abroad towork in order to improve their financial si-tuation. Some businessmen but mostlyunqualified workers go to the CIS countrieswhile the EU is the destination for bothlow-qualified labor and well-educated peo-ple, who could contribute to the mother-land’s welfare if they had worked in theirnative land. The Central Statistics Officehas information suggesting that most Lat-via’s residents, who went to work abroad re-turned back in less than a year.
The British, Irish and Swedish labormarkets are presently fully open to Latvianresidents. Other EU member states will de-cide in May 2006 whether to open their la-bor markets or sustain current restrictions.Eight EU newcomers, i.e. Latvia, the CzechRepublic, Estonia, Lithuania, Hungary, Po-land, Slovenia and Slovakia have called onthe European Commission to take measu-res to stop discrimination against compani-es and workers from the new EU memberstates on the EU labour market. In otherwords, the issue of free movement of laborand services in the EU is at stake.
A poll conducted among businessmenby Latvian business newspaper Biz-
40 Labor Market www.baltkurs.com
Urgently Wanted: Engineers and Craftsmen By Olga PavukBy Tatyana KomorskayaBy Dmirtrij Kulikov
Qualified workforce migration from the new Baltic States to the West has been growing with the frightening dimensions.As many as 40 thousand to 100,000 economically active people, according to various sources, left Latvia since the country joi�ned the EU. And it seems to be just the beginning. The situation in neighboring Lithuania is even worse, i.e. up to half a mil�lion people have left Lithuania for work or studies abroad since 1990. Although Estonia experiences annually a shortage of 500�1,000 specialists in different economic sectors, hiring foreigners doesn't seem to imply presently any dangerous consequencesfor Estonian labor market. Local politicians so far failed to define the nucleus of the problem — whether it is a natural mani�festation of globalization or the most dangerous trend about which something had to be done urgently.
ness&Baltija has shown that the most highlydemanded profession in Latvian labor mar-ket is shop assistants (because it is increasin-gly difficult to find somebody willing towork for 80-150 lats a month — 50-70 USD).The job is taken mostly by people of pre-re-tirement age and high school graduates. Ex-perienced cashiers, who speak English, aregoing abroad where they count on amonthly salary of at least 1,000 euros.
Cafes, restaurants and other public ca-tering facilities are in the second place, andcooks are needed most badly. “Professionalsin this field are worth their weight in gold,and competitors try to lure them away”, saida restaurant-owner.The main thing is that thesituation is only going to get worse in future.Thus, Latvian Cabinet of Ministers’ regula-tions which will take effect in 2007 wouldmake it mandatory for chefs, senior barten-ders and managers in cafes and restaurantsto have a professional education certificate.
Strange as it may seem, constructionindustry is the third on the “wanted list”with the biggest shortage among engineers;only a few students started engineering sci-ence studies after Latvia’s independence in1991. Workers with narrow specialization
are also in great need. For example, there isnot a single school in Latvia for trainingcrane operators; those, who work in this fi-eld, were educated mainly during the Sovietperiod. There is also a deficit of bulldozerand excavator’s operators, cement workers,stone carvings, painters, etc.
Manufacturing industry specialistsoccupy the fourth place in the deficiencylist. Enterprise owners admitted franklythat it was not a big problem to hire andquickly train personnel to perform simpleoperations (like packing) but it was extre-mely difficult to find qualified specialists.One of the underlying reasons is the highcost of training engineering specialties. TheBaltic Russian Institute experts have esti-mated that to train an engineer costs about
2,000 lats a year while for lawyers and eco-nomists it’s 700 lats.This is why a number ofLatvian higher education institutions turnto quick education the latter ones.
Reports about high unemployment ra-te (around 26-27%) in the remote easternLatvian region of Latgale are only partly true.The Baltic Russian Institute experts said thatunemployment problem among “capable ma-les” did not exist in the region’s largest cityDaugavpils, although women did have pro-blems finding jobs. Most of unemployed menwere both unwilling and unable to work forthe simple reason of alcohol abuse. For exam-ple, Lokomotive rail car repair plant experi-enced shortage of qualified craftsmen with amonthly wage of around 250-400-800 lats.Young generation refuses to follow theirfathers’ footsteps preferring instead to washdishes in Ireland or the United Kingdom.
LITHUANIA OPENS MARKET TO IMMIGRANTS
It was announced in late Novemberthat Lithuania, just like other EU member sta-tes, will begin consultations to introduce theEuropean Qualifications Framework (EQF).It will make possible for people to look for an
About 13.7% of all the unemployed reg�istered in October 2005 in Latvia wereyoung people aged 18�25, about 8.5%were people with university degrees.Over 80% schoolchildren at graduatelevel do not associate their professionalfuture with Latvia and are going to lookfor jobs abroad.
“Social Dumping”: Intentions and Deeds By Eugene Eteris, BC International Editor
No doubt that both old and new EU’s integration part�ners are concerned about the same problem, i.e. creating moreopen and liberalized internal market based on so�called “fourbasic freedoms” — goods, capitals, people and services. Thefirst two basic freedoms in their implementation do not prec�lude serious obstacles, it’s just a question of time and thingsare getting better with each year. The other two freedoms ha�ve become in fact a matter of serious concern among the old,the new member states and the EU leading politicians.
Symptomatic enough, but the reasons for concern on both si-des are rather different.As is seen in the BC’s reports the three Bal-tic states’ leaders express serious concern on labour flows fromthese countries, the process becoming dangerous for certain econo-mic sectors in the Baltics.
The leaders in the “old EU members”, on the other hand, ha-ve shown a political resistance to workers’ free movement. The im-petus to “worries” has been coined at a time of an initial services di-rective draft, the proposal set for the EU agenda in January 2004.The fact which is important to remember: both the directive’s initi-ative and the whole preparation work were performed by the old15 members’ Commission and the old Parliament (without about ahundred new MEPs from Central Europe).
It seems that major stumbling block to workers’ free move-ment in the proposed service directive has been long ago envisagedalthough decorated by the pretext of “social dumping”. What couldbe simpler: you want to work abroad, go ahead, if you can find the
employment according to your intentions and remuneration. Butpoliticians in the rich EU member states have detected a dangeroussymptom in such”simplicity”, i.e. labour flows from central Europewith wages generally at least 3-5 times lower could result in unem-ployment increase in the West.
That was the reason that almost all EU states adopted 3 to7 years’ restrictions on free labour, except Britain, Ireland and Swe-den to allow unrestricted access to their labour market. Accordingto latest EU data, about 300,000 east Europeans applied for workin Britain since enlargement in May 2005, Ireland took in 85,000while Sweden absorbed about 22,000.
In order to sweeten the pill,“social dumping” doctrine has beencoined into EU’s regulatory network as the need to protect services ofpublic interest, in the first place. Western trade unions’ approach wassuch as to prevent new recruits ready to work for “half-price” wagewhich could demolish trade unions’ more than hundred years’ combatfor higher salaries and social guaranties. But do eastern Europeans re-ally have to wait until they catch up with the Western welfare level?
Social solidarity seems hardly bother Western political parties.Even social democrats are cautious about definite decisions trying toinvent some preventive means. Thus at recent Danish social democ-rats meeting an issue of “workers’ green-card” was seriously discus-sed, along side western-type employment rules and payment condit-ions for the new EU members. The latter is in fact a barrier difficultto overcome. Frankly speaking, that difficulty could be challenged ifthe resources devoted to the social dumping control are derailed in-to more prudent aims to support freedom of labour and services’ mo-vements, a right enshrined in the European law.
So far this sensitive issue is dividing Union’s politicians. Andlack of unanimity on social dumping is apparent. But good news isthat the EU voiced a serious concern to resolve the issue, thus in Feb-ruary-March the Commission is expected to make public a “sensitivereport” on the matter. Things are getting better, aren’t they! •
The Baltic Course — Winter 2006
occupation in Europe on conditions whereboth a job seeker and a potential employerwould understand perfectly clear what exactlyis written in the certificate or a document onfuture employee’s professional competence.
The EQF will help hundreds of thou-sands of people moving all over Europe toattest their education certificates. The EQFis composed of eight levels of professionalcompetence and makes it possible to com-pare knowledge acquired in different Euro-pean states. Every person will be able to ap-ply for a document listing in detail theireducation and qualifications’ levels.
The EQF project will be completed inthree years and it is financed from the Euro-pean Social Fund. It means that Lithuaniawill get for project implementation 6 mil-lion litas (EUR 1.74 mln) and that wouldmake things easier for those wanted towork abroad. However, market analysts arerather skeptical about further mass wor-kers’ migration from Lithuania.
As unemployment rates in Lithuaniahave dropped recently to the record-low levelin the past decade, increasing concerns arebeing voiced that the country is running outof labor resources because major part ofthose still unemployed could be described asso-called “inevitable labor market residue”(those with lack of qualification, unwilling towork, socially degraded, etc.). Alarming sig-nals about labor shortage are being raised notonly by experts but also by officials in coun-try’s regions and quite often by separate com-panies which recently did not pay any atten-tion to its own staff being pretty certain thatLithuania had limitless labor force reserves.
Thus, industrialists in Klaipeda havereleased a nationwide warning that in threeyears’ time Lithuania will be facing an eco-nomic crisis due to labor force shortages.Klaipeda population has shrunk by 10% du-ring last decade to present 188,000 whilethe level of production is growing.
They also offered three possible solu-tions: to modernize production, to raise wa-ges, and let in specialists from third countries.It has to be noted, they didn’t invent the whe-el; the government is already using those to-ols. Concerned businessmen also talk aboutlack of work force reserves: an example —workers from entire western Lithuania havemoved to Klaipeda during recent years. Atthe same time the industrialists raised (al-most for the first time) a question of movingproduction to smaller towns. Barely two ye-ars ago had they fought desperately for theright to accommodate in Klaipeda any decentforeign business, now their position has chan-ged dramatically. It is time to decide, they say,whether the city needs companies like Yazak
with 3,000 jobs or hi-tech plants like NeoGroup which employs just 250 people.
At the end of 2005 Klaipeda had oneof the lowest unemployment rates inLithuania at 3.9%, and, the local businesspeople claimed that there were no unem-ployed males left in this sea-port city at all.Statistics show, however, that the lowestLithuanian unemployment rate is in theMarijampole county at the level of 3.3%.
It has to be acknowledged that theextent of labour migration has never been stu-died properly in Lithuania. Existing forecaststhat unemployment is likely to be reduced byone percentage point every year can’t be fullyconvincing. Still, the growing demand forwork force on domestic market will probablybring some correlations to those forecasts.
Lithuanian Statistics Department ac-knowledged that in the 2005 second quarterthe level of unemployment was 8.5%, downby 2.8% from 11.3% the year before. Unem-ployment rate among women has reducedto the same level as that of men, i.e. to 8.5%.In the second quarter of last year there we-re 1.473 thousand working people in Lithua-nia, more than 31,000 people as to the sameperiod in 2004.
Employers — employees’ rela-tionships could be perceived as an indirectindicator of the real work force shortage inlabor market, and everything suggests thatit is time for the administration, manage-ment and company owners to demonstratetheir interest and care about the staff. Butlast 15 years’ inertia, i.e. lack of interest inthe staff, still persists.
Vilniaus Vingis, one of the largestelectronic components’ producers in theEU is among Lithuanian companies thatconstantly feels the lack of qualified person-nel. Last year Vilniaus Vingis was forced tofire about 700 workers due to reduced de-mands for its products. Now the demandhas grown again but the previously laid offstaff has turned its back to the company, i.e.people do not want any more to work forVilniaus Vingis preferring to look for morestabile employment while receiving unem-ployment benefits.
Raising wages is an absolute, tried invarious circumstances, and obvious tool for
regulating labor market, as well as preven-ting workers’ outflow in drive for better re-muneration abroad. It should be mentionedthat wage increase in Lithuania has beenquite noticeable recently, growing by about10 per cent from third quarter in 2004 tothird quarter in 2005, mostly as a result ofgovernmental actions.Average monthly wa-ge in Lithuanian economy (except thatamong private business) was 1,379 litas(about EUR 400) in the third quarter of2005. The Statistics Department said thatthe wage growth had been due to a corres-ponding minimum wage increase in healthcare system and other groups of civil ser-vants. Average gross monthly wage for menis currently 1,460.8 litas; women get 1,191 li-tas a month, before taxes.
Second powerful economic tool thatLithuanian government has chosen to applywas opening the labor market to immigrantworkers. All of a sudden, everybody spokeabout the problem in full voice, first withcertain excitement (how come, Belarus wor-kers are allowed to work at construction si-tes in Lithuania!). But many company ma-nagers, who would have found such attitudequite shocking a couple of years ago, all atonce found the approach rather appropria-te. As a result, quotas on labor force immi-gration to Lithuania have been lifted. But sofar, there is not mass influx of people fromthe CIS countries. Somehow, it is not thateasy to get a work permit in Lithuania: it’snecessary first of all to show that the com-pany made efforts to train the required per-sonnel, in particular local unemployed peo-ple. The whole procedure for obtaining suchpermits can take up to two months. Thework permits are issued for various periodsof time but no longer than two years.
Recently such permits have been is-sued to about 400 people from Belarus, Uk-raine, and Moldova. But it seems unlikelythat foreign labor will become a mass phe-nomenon in Lithuania.
Lithuanian government and its PrimeMinister Algirdas Brazauskas are stakingtheir hopes on present generation ofLithuanian emigrants returning to their na-tive land. The government is even conside-ring providing tax exemption for earningsabroad. It is true, although, that the sugges-tion is being already under considerationfor a long time and without much progress.It is officially recognized that about 300,000people left Lithuania during last 15 yearsfor work or studies abroad (the unofficial fi-gure is half a million) of which some 72,000have returned. These figures are difficult toverify, however. For example, Irish authorit-ies have reported about 140,000 Lithuanian
42 Labor Market www.baltkurs.com
Industrialists in Klaipeda havereleased a nationwide warning that inthree years’ time Lithuania will be fac�ing an economic crisis due to laborforce shortages. Klaipeda populationhas shrunk by 10% during last decadeto present 188,000 while the level ofproduction is growing.
guest-workers, although Lithuanians weremostly working in the United Kingdom,Spain, Germany and all Scandinavian coun-tries. According to several sources the num-ber of “contemporary” Lithuanian immigra-tion in the United Kingdom is about200,000 people.
Lithuanian Prime Minister is confidentthat as soon as personal income tax in thecountry is being reduced the problem of resti-tution payments between the income tax alre-ady paid abroad and the amount subject topayment in Lithuania as one returns fromwork abroad will simply disappear with time.
In fact, labor resources’ situation in thecountry may not be that bad after all. Thus,having opened its branch in Vilnius an Irishcompany Executive Search Ireland is quitehopeful to find in Lithuania highly qualifiedhigh-tech specialists, civil and software engi-neers, pharmacologist, developers, projectmanagers, architects. Regardless of the factthat there are already about 140,000 Lithua-nian citizens working in Ireland or, maybeexactly because of that! Irish employment ex-perts say that Lithuanian workers are beingvalued in Ireland for their hard work, diligen-ce and willingness to work overtime.
ESTONIA EXPERIENCES LABOR FORCE DEFICIT
Estonian business and economy is wil-ling to hire about 400 foreigners each year,although business majority think that theycan do well without. But a poll conducted bythe Ministry of Social Affairs had shown thatthere is great demand for foreign work forceand that 14% of the respondents are ready topay for foreign specialists. About 6% of Es-tonian companies would start looking for fo-reign staff already in the near future. Thoughagain, overwhelming majority (86%) thinksthat it is possible to manage without foreignstaff, and relying just on local work force.Out of a thousand companies with a staffover 20 people, only 140 showed interest inemploying foreign workers.
There is a deficit of various professio-nals in Estonia but local labor market is unab-le to supply them. Estonian Employers Con-federation (ETTK) president Enn Veskimagi,the head of the private Standart company,thinks that main reason for such a situation li-es in the outdated system of vocational educa-tion and training and it has depreciated duringlast years but state authorities missed the timewhen financial investments and other contri-butions were required for improvement. “Wein ETTK have estimated that the country ex-periences a shortage of 500-1,000 specialistsin different economy fields annually”, said Ves-kimagi. In principle, there is little difference
between ETTK figures and results of the pu-blic research; but more accurate analysis sug-gests that annual labour deficit is at the levelof half a thousand workers per year.
Some researchers have showed thatsuch activities as education, manufacturingindustry and hotel business have the biggestproblems. As to the staff needed with speci-fic qualifications and professions, the pictu-re is the following: shortage of specialists inmetalworking and wood-processing (mil-ling machine operators, welders, etc.), in te-xtile industry (lack of spinners), and univer-sities are interested in foreign lecturers.Companies would welcome foreign mana-gers having such qualifications.
As to labour geography, businessmenare more inclined to use work force from
neighboring countries as well as guest wor-kers from Eastern European countries andformer Soviet republics. It is understanda-ble because their wages are considerablylower but qualifications are higher. Estoni-ans would be willing to invite managersfrom neighboring Finland and pay themcompetitive salaries according to Europeanstandards for the reason of better educationand greater commitments.
Vice-chancellor Janno Jarve from Es-tonian Ministry of Social Affairs informedthat present shortage of labor force in thecountry has reached 4,000 people. The num-ber of Estonians able to work but still unem-ployed is much higher than that figure. But allthat is according to statistical figures; in reali-ty the picture is different as not all of themmeet employment’ quality requirements andtherefore guest workers will have to be invi-ted. It is difficult to say how the state will sol-ve this problem: “the decision should be ta-ken on the political level”, said Mr. J. Jarve.
Both vice-chancellor and the head ofthe employers’ confederation think that hi-ring foreigners doesn’t imply any dangerousconsequences for the Estonian labor market.
A special advisory body EURES wascreated in the EU to assist those interested inforeign employment. EURES provides consul-tations and helps companies to find the neces-sary personnel. For this purpose a special data-base has been created and can be consultedthrough Internet at http://europa.eu.int/eures.
According to experts preparing Estoni-an draft regulation aimed at reducing unem-ployment, main idea is to “activate” and en-courage people that are currently out of work.As the Ministry of Social Affairs’ representa-tives mentioned, if the bill is adopted, unem-ployed people will be more motivated to showinitiative in looking for a job. The state is go-ing to use mainly “carrot stick” offering suchincentives as transport costs’ compensationsof up to 1,200 kroons instead of current 200kroons, accommodation costs (for those co-ming from other towns) as well as scholarshippayments during training period (the durationof which increased to 1 year). The last amen-dment was suggested because previously al-lowed 6 months’ training has not been enoughfor getting required qualification.
Under proposed draft for Estonianlabor market reform and unemploymentsupport system everyone will have an indi-vidual scheme for finding a job. For this pur-pose a person without a permanent sourceof income will have to contact Labor Mar-ket Department’s councilor who would as-sist a person to compile his/her personal fi-le containing information about person’seducation, skills and other important foremployment facts.
Harri Taliga, chairman of the Confede-ration of Estonian Trade Unions (EAKL) saidthat the new draft program has had some defi-ciencies, too.“Why should a person, who usedto receive an average salary, and will be getting40% of it for 26 weeks after loosing the job, goand look for a job with a minimum wage”, heargues. Unemployment benefits at a minimumamount of 400 kroons do not stand any crit-icism! Still,Mr.H.Taliga was pleasantly surpris-ed that trade union representatives were invi-ted to participate in drafting the project.
Estonian Employers Confederationchairman Tarmo Kriis is certain that the newdraft is much better than the previous one,although to his mind some other methodsshall be used in order to improve employ-ment in the country. “People may be lookingfor jobs actively but if no jobs are createdthey will simply have no place to work in”, hesaid. Medium and small-sized enterprisesshould be developed and favorable condit-ions created for that, suggested Mr.T.Kriis.
The new draft pays, somehow, muchmore attention to such categories as disabledpeople, citizens of non-Estonian origin, formerprisoners, i.e. to all those for whom it is espe-cially difficult to find jobs. Government autho-rities hope that adopting new draft they willachieve 70% employment in the country, thelevel required by the EU directives.Accordingto national statistics, the level of employmentin Estonia was 62.5% at the end of 2003. •
There is a shortage of specialists inmetalworking and wood�processing(milling machine operators, welders,etc.), in textile industry (lack of spin�ners), universities in Estonia are inter�ested in foreign lecturers. Companieswould welcome foreign managers hav�ing such qualifications.
In modern marketing theories the po-sition of the firm is being analyzed throughquickly changing marketing environmentconditions containing both opportunities andthreats for its development. Increasing num-ber of firms consider marketing environmentas conditions to which it is necessary to adapt.Some perceive marketing environment as apassive substance not even trying to changeit; they analyze the range of forces operatingin this environment and develop the strategyhelping to avoid threats and to take advan-tage of its favorable opportunities.
Other companies are trying to man-age marketing environment, undertaking ac-tions to influence both society and market-ing environment factors. Such companiesemploy influential people for lobbying theirinterests during adoption of laws; arrangespecial actions for mass media to get theirsupport.They pay editors of newspapers andmagazines in order to publish favorable edi-torial materials giving positive attitude totheir products or company activity as awhole, thus forming public opinion. Theyconclude contracts and agreements too, inorder better supervise distribution channels.
FOLLIES AND MEGA TENDENCIESSome special agencies, while being
engaged in search of the first trends’ ap-pearances, address largest newspapers cal-culating how many times this or that themewas mentioned on their pages. Other agen-cies try to reveal trends and tendencies onthe basis of people’s psychology and moods.These abovementioned research methodscan hardly be mentioned as precise meth-ods reflecting real essence of future chan-ges. Probably some non- conventional formarketing and market research can revealtendencies, follies and mega-trends moreprecisely. Together with quite familiar Ham-burg school of astrology methods and astro-genetics’ methods discovered by Latvianscientist Svetlana Budjashkina, which drawplanetary pictures of various events.
While developing strategies and plansfor a company it is necessary to take intoconsideration interests of its main constitu-ent parts, such as top management, financialdepartment and department of researchesand development, that of service and logis-tics, manufacturing, trade and accountingdepartments. All these interconnected
groups form a company’s internal microen-vironment.
The firm and its micro-environmentare affected by the macro-environment fac-tors or conditions, which at the same timecan open new opportunities or presentsources of threat. Major factors of the ma-cro-environment concern are ecological, sci-entific and technical, economic, political,demographic and cultural.
Astrogenetics’ methods can be use-ful, first of all, for small and average enter-prises as methods being more accessibleand authentic. Positive effect can bereached due to opportunities of carrying in-formation received in one sphere into an-other as well as due to general time reduc-tion for research. The depth of research canbe different, e.g. 1 year, 10 or 100 years.
THE HAMBURG SCHOOL OF ASTROLOGY(URANIAN ASTROLOGY)
The Hamburg school of astrology isbased on the development of the first halfof the XX century German astrology scien-tist Alfred Vitte and his colleague and ad-herent friend Fredrik Zigrjun. Active sup-porters of the Hamburg school of astrology,who played important role in distributionand popularization of its concepts, wereLudwig Rudolf and Wilhelm Beckmann,later Herman Lefeldt in Germany, RichardSvela in Cleveland and Hans Niggeman inNew York.
The following aspects are consideredin Hamburg school of astrology (UranianAstrology):• Ten planets traditionally used in otherschools of astrology: Sun, Moon, Mercury,Venus, Mars, Jupiter, Saturn, Uranus, Nep-tune, and Pluto.• Eight uranian or trans-neptunian planets:Cupid, Hades, Zeus, Kronos, Apollon, Ad-metos, Vulcanus, Poseidon, — being, prob-ably, only calculated mathematical points,but allowing more precise description of an-alyzed phenomena,• and also personal points: Aries Point, Me-ridian, Sun, Moon, Ascendant, LunarNode.
In planetary pictures mentioned plan-ets can mean, for example, the following:• Sun: SU — year, day, body, father, hus-band, man, person, chief, a member of thegovernment, leader of the religious and in-dustrial organizations, center.
The Baltic Course — Winter 200644 Innovations www.baltkurs.com
By Lyudmila Selivanova Doctor in Economics, Latvia
An idea to acquire additional information on the basis of analyzing naturalphenomena is common to such exciting scientific notions as bio�economics, cosmic�biology and astro�genetics. Experts suggest using these specific approaches toincrease efficiency of research within a company’s marketing environment.
Astro�Genetics’s Role in Marketing
• Moon: MO — mother, wife, woman, feel-ing, character, public, system of distributionof products, system of service, house atmos-phere, place of residence.• Mercury: ME — brother, sister, neighbors,hearings, business, correspondence, messa-ges, report, notice, movement of thoughts,means of the communications, information,opinion, letter, dialogue, word, publishinghouses, book-publishing, trade, radio com-munication, transport.• Venus: VE — woman of young age, desire,sympathy, harmony, love, beauty, preference,art, luxury goods, jewelry, flowers, paintings.• Mars: MA — metals, weapon, fire, athlete,sportsman, work, activity, actions, manufac-ture, energy, will.• Jupiter: JU — expansion, growth, devel-opment, success, finance, money, advantage,satisfaction; people connected to religion,law and higher education.• Saturn: SA — difficulties, handicaps, in-fringements, division, losses, restrictions,poverty, illnesses, administrative work, oldmen.• Uranus: UR — people who have risenabove ordinary people, members of parlia-ment, inventors; path breakers, trailblazers;antique dealers, electronic devices, high-al-titude houses, radioactive substances, ex-citement, dynamics, breaking news, reforms.• Neptune: NE — democratic movements,ordinary people, crowd, mysticism, chemicalingredients, other’s property, liquid, gas, un-certainty, intuition, unknown, future.• Pluto: PL — expansion, development, ev-olution, transformation, change, growth, lawenforcement bodies, advancing time ideas.• Cupido: CU — community and communi-cation, family, marriage, all kind of groupsand communities, social sphere, tradingfirm, organization, union, synthesis, summa-rizing.• Hades: HA — clarification, disintegration,downward forces, shadow, past tense, accu-mulation from the past; danger, decrease,delay, loss, analysis, ancient sciences, gener-al services.• Zeus: ZE — purpose, leadership, begin-ning, energy connected to authority anddominance, fire, strategy, command, stimu-lus, plan, creativity.• Kronos: KR — oligarch, leader at any lev-el, eminence, management, independence,authority, height.• Apollo: AP — multiplication, expansion,knowledge and thirst of knowledge; infor-mation, science and education, experience,crafts, trade, commodity market.• Admetos: AD — stability, ground, resour-ces, durability, validity, endurance, consist-ency, concentration, condensation.
• Vulcanus: VU — power over nature, hugeenergy, power, control, influence, productiv-ity, superiority.• Poseidon: PO — knowledge, education,idealism, nobleness, unexpected inspira-tions, memory, truth, culture.
In Uranian Astrology personalpoints are interpreted in a little differentway than in other systems of astrology. In ageneral overview, three personal points,which symbolize: one is “Me” — the Merid-ian, the Sun, the Moon, and other three are“Not Me”: the Ascendant, Aries Point, Lu-nar Unit.• Meridian: MC — Me, a minute, is themost important point of a horoscope.• Sun: SU — a year, day, body, man, person-ality, center.• Moon: MO — hour, woman, mother, peo-ple, feeling, emotions, mood, instincts.• Ascendant: As — others, you, close envi-ronment, partner.• Aries Point: AR — public life, world.• Lunar Node: NO — casual meetings, at-titudes, contacts, communications, inter-mediary.
It is necessary to notice, that Ham-burg school of astrology methods in theanalysis of the firm’s marketing environ-ment provide a unique additional sourceof the primary information. This impor-tant information appears as a result of as-trological supervision. We have carriedout some practical research of the market-ing environment using means and meth-ods of the Hamburg school of astrology.As an example we have taken a really ex-isting firm with a conditional name В-Sun. The results of our research have beenpresented as a concrete technique of re-vealing synergy factors in the company’swork. These research was accompanied bythe computer program “Astrologic PC” —Michael Feist.
ASTROGENETICS IS ASTRO�LINGUISTICS PLUS VERBAL SYMMETRY
As a natural development of theHamburg school of astrology’s achieve-ments is the system of methods andmeans to process information and carryout strategic marketing researches withinmacro environment, which received thename astrogenetics. The latter is an inter-disciplinary knowledge and alongside as-trology based on principles of the Ham-burg school, includes astrolinguistics andverbal symmetry.
The content of astro-linguistics is asymbolic modeling of information for-mulated in human language or cognitive
instruments of any science. Verbal sym-metry is engaged in recognition of no-tions, which carry symbols and signs, in-cluding astrological, and their combina-tions. In the concept of astrogenetics thelanguage of astrological symbols is con-sidered both as the tool of scientificknowledge, integration of knowledge ofvarious disciplines and producing newconcepts on this basis.
Main issue that astro-genetics dealswith is an issue of integration of cumula-tive knowledge, understanding of ways ofpeople’s thinking, mechanisms and laws ofcompression and expansion of informa-tion, organization and management of itsmain streams. Great Russian scientistA.L.Chizhevsky specified huge impor-tance of “application of methods of onescience to another and synthetic unifica-tion of various scientific disciplines”. Thesystem of astro-genetics’ methods andmeans allows uniting life sciences with thetheory of economics and business, linguis-tics and mathematics, to develop new ef-fective technologies to generate ideas.
In addition to symmetry principleintroduced by Hamburg school of astrolo-gy for revealing changes in planets’ mutu-al configuration, astro-genetics uses Uni-verse unity principle. According to thisprinciple, all processes in the Universe,both on Sun and on Earth occur under“common program” and under commoncycles. A.L.Chizhevsky has proved in nu-merous researches that 11-years cycles ofsolar activity coincide with social and eco-nomic cycles on Earth. Moreover, basicconditions of geographical territories alsosubdue to 11-year cycles. Based on 11-yearcycles in geographical situation of variouscountries business-activity in Sweden,Denmark, Germany, and Latvia is sub-stantiated. Importance of these countries’cooperation is underlined, especially thatof Sweden, with so-called “greater coun-tries” — Russia, America, China.
Astro-genetics’ methods intercon-nection with discoveries made by A.L.Chiz-hevsky can provide serious methodologicalhelp in revealing territorial clusters, unitedby the general tendencies in their develop-ment, and also clusters exposed to identicalthreats. Thus, for example, problems formu-lated in the EU Sixth Framework Programfor scientific researches can be more effi-ciently resolved, e.g. revealing developmentof new trans-boundary areas in science andtheir geographic distribution, disappear-ance of some kind of scientific activitiesand professions and appearance of somecompletely new. •
In order to provide adequateanswers, the BC interviewed Mr. IlmarsVamzis, Head of NORD/LB LatvijaBank’s Sales Department.
BC: Mr. Vamzis, how do youassess present mortgage situation inLatvia?
IV: Mortgage credit has becomeone of the most popular bank servicesamong citizens as people often applyfor a long-term bank credit that is usedfor making their lives better while atthe same time providing them with anadequate loan security.
This service is a sort of banks’response to the market demand; at thesame time, quite often, it is mortgageinterest rates that becomes a decisivecompeting factor in banks’ offers.Therefore we can often witness a situa-tion when our clients do not completelycomprehend the changes in the interestrates (of the size of tens’ per cent points)which actually in the long run is the mostimportant and decisive factor.
BC: Mortgage credit owners inNORD/LB Latvija Bank are quiteaware of elastic and favorable rates;what else is specific in Bank’s mortgageoffer?
IV: It is true that mortgage creditportfolio in NORD/LB Latvija is grow-ing faster than average figures inLatvian bank sector. It’s a solid proofthat bank’s clients adequately assessbank’s credit interest rates.
Thus, for most of our credits offermortgage credit is a long-term financialobligation, i.e. such credits ate taken for15-20 or even 25 years’ time. Our bank’ssuccess story lies in the fact that arationally thinking client while choos-ing “his bank” takes into considerationseveral other not less important factors.Such as our employees’ care for theclients’ wishes and interests, individualapproach and assistance, favorable andelastic interest rates, accessibility of our
banks’ filial in the country — these arejust a sketch of factors that clients takeinto considerations while choosing thebank and mortgage credit.
NORD/LB Latvija Bank is fullyaware that quite often negotiations onmortgage credit and complicated paperwork have aroused stressed among theclients and negative emotions requiringboth necessary time and strict in-timepayments. We’ve taken these factorsinto consideration.
BC: We know that NORD/LBLatvija Bank has prepared a specialmortgage service offer called“Mortgage credit Plus”; what are theadvantages for bank’s potential clientsin this regard?
IV: It has to be said that our bankpresently provides credits covering ofup to 90% of the real estate marketvalue, as for the new construction proj-ects — up to 95% of the completedhousing value. Bank’s clients do knowperfectly well that they can get a mort-gage credit with a favorable constantinterest rate. Already to-day we offerclients mortgage credits with + 1.1 percent durable inflation rate. We are quiteglad that our clients can get alreadynow our most favorable credit offers.
We respect our clients’ time andtherefore are trying to assist them insolving various formalities involved inconcluding the deal, e.g. real estate val-uations, making purchase deal, insur-ance issues, various notary, certificationand security papers and other docu-ments required for making a mortgagedeal completed. I thing it can save theclient a lot of time and energy!
Besides, NORD/LB Latvija Bankcan assist our clients in coveringexpenses incurred into the future mort-gage deal, such as brokerage fees andopening of a special bank account,including these expenses afterwardsinto the total credit amount.
In this way “Mortgage creditPlus” can significantly facilitate client’sinvolvement into concluding the mort-gage deal and acquiring real estate.
Important addition to the“Mortgage credit Plus” should be men-tioned, i.e. this new credit arrange-ments can facilitate credit processingeven during weekends and holiday’stime, as well as to postpone basicreturn payments of up to 2 years!
BC: What other additional serv-ices you can provide to your clients?
IV: As I already mentioned, themost important factors for clients arethe set of services a bank can provide.NORD/LB Latvija Bank is a universalbank which offers the clients, along sidewith mortgage service, a number offinancial services, such as issuing creditcards, facilities for distant payments,favorable deposits, various kinds ofcredit offers and several other services.On top of this, our clients have alreadyhighly appreciated our employees’involvement into clients’ needs assistingthem in solving all the financial prob-lems connected with the mortgage dealand reducing the burden of expenses.
I can assure you that we can alwaysstrike a deal with a client, and to agree oninterest rates is never a problem! •
Time and Resources We Saved — Our Valuable Acquisition
Mortgage credits have become a constant necessity for Latvians, i.e.most of them need liquidity in order to implement their life�plans — reno�vating, buying or building houses and apartments. Banks are taking intoconsideration citizens' needs while providing them with favorable creditterms and interest rates. In this situation a question arises: which factorsare to be taken into consideration while choosing, out of several options,only the perfect one that fits into all the clients' requirements?
Securities and equity markets usuallyinclude the followings items:• money and bonds,• stocks,• various derivatives and• several funds, e.g. mutual and hedge funds.
The total value of money marketinstruments in the euro area (in whichmore that half are treasury bills)amounts to about 850-900 billion euro,which is about a tenth of the total bondmarket in this area. The largest amountof securities has been issued in France —about 350 billion, Italy — about 150 bil-lion and Germany — 120 billion euro.Integration in secured money market,often called repo market, proceeds veryslowly, mainly due to the lack of euroarea-wide collateral markets. So far, untilthe EU directive on financial collateralarrangements is adopted, different secu-rities are used as collateral in repo mar-kets. But the use of repos has increasedgreatly since euro introduction, althoughrepos operate mainly as national mar-kets. It has to be mentioned that taxtreatment of securities eligible as collat-eral has not been harmonized.
Bond market is dominated by gov-ernment issues and mortgage-basedbonds. Since the launch of euro, theEuropean bond issues increased by tentimes, i.e. from about 100 in 1980 to aboutone thousand 25 years after. On interna-tional bond scene nearly half of the mar-ket is denominated in the US dollars andabout 35 — 40% in euro. The EU corpo-rate bond market is fragmented and small— about 6% of the total — in comparisonto about 20% in the US.
There are two main traditionaleurobond centers in the EU, i.e. Londonand Luxembourg; recently such tradingbegan also in Zurich.The first two are tryingto prevent the EU regulations from under-mining their own eurobond markets.
Eurobond market at present hasreached 3,000 billion euro of which theUK accounts for about two-thirds (thesector supports thousands of London-based jobs). About ten eurobond issues aday is taking place in London. Zurichexchange altered its rules in February2005 to permit eurobond listings by non-Swiss companies. This provides a messagefor non-EU issuers which do not want tosubmit to the new EU regime and wouldlook elsewhere for alternatives.
The London Stock Exchange (LSE)plans to launch an alternative, self-regu-lated eurobond market which will be freefrom EU control. Luxembourg stockexchange plans to create a similar “profes-sional” alternative market for bonds in thenear future too.
The EU is expected to introduce adirective which would require bond issuersto follow the new International FinancialReporting Standards. Good news too is thatin 2007 a second transparency directive willcome into effect.
The EU stock markets are stillmuch smaller than those in the USA,although the rate of growth is becomingmuch higher. The growth of the markethas been influenced by the followingclose cooperation and mergers in theEU, since euro introduction:• Stock exchange merger in 2000 ofBelgium, the Netherlands and France intoEuronext Stock Exchange; later LisbonStock Exchange joined Euronext;• Deutsche Bourse expansion and recentattempts to merger with LSE;• Broad merger of Scandinavian exchanges,starting with that of Helsinki andStockholm in 2003, and later involving theBaltic States, i.e. OMNEX.
48
EUFinances www.baltkurs.com
EU Integration in Equity and Securities: Towards a Single Capital Market This is the 3rd article in our series of articles on EU financial and banking integration processes
By Eugene Eteris European Integration Institute, Denmark
Long�term financial instruments are subject to integration at different speed and at different markets’ sectors. Creation ofeuro, for example, quickly influenced stocks’ indices in 12 eurozone states and at the same time left it almost unchanged in an�other 13 EU member states. Various integration steps are deemed to overcome national barriers in financial regulations and tax�ation. For example, there are still 25 stock exchanges in the Union, as there are EU member states, regardless of persistent andoften quite successful merger efforts.
Stock market integration in the EUhas been forced by technological progressin securities brokerage, remote brokers’increased role and cross-border investmentservices provision. Thus, in 2004, more thanhalf (28 out of 44) brokers operating onHEX were remote brokers. The trend wasfollowed by increased importance of non-resident investors at the expense of residentones in most EU countries.
Euro introduction has changed deriv-atives market significantly, e.g. trading in theeuro-zone was concentrated in the largestderivatives exchanges in Euronext, Eurex,etc., and consequently contracted consider-ably. At the same time new derivative prod-ucts, for example, credit derivatives haveappeared in the euro market and interna-tionally. The latter is a contract the value ofwhich is connected to the credit risk of thecompany in question or financial institute(e.g. swaps, futures or options).
Both short- and long-term interestrate derivatives in the European Union havebeen concentrated in Euribor and Eonia.
Mutual funds have not been tradi-tionally widespread in Europe (except theUK, France and Sweden) as Europeanhouseholds’ assets were channeled intobank deposits and bond/stocks markets. Incomparison to the US, the mutual fundscapital was twice less in Europe: 3,500 bil-lion euro in Europe and 7,500 billion in theUS in 2003. In the latter the mutual fundshave had several decades’ history.As for theEU, only in France mutual funds have longplayed significant role in investments: herethe ration of funds’ assets to GDP was onthe US level.
It has to be noted that savings behav-iors are changing in Europe which isreflected in a higher rate of growth inmutual and pension funds (partly due togrowing popularity and partly due toanother important reason connected withthe ageing of European population). In thebeginning of 2004 the size of mutual fundsin euro zone was about half of the areas’GDP. About two thirds of the mutual funds’assets are concentrated in three countries,i.e. Ireland, Luxembourg and France. Non-residents mostly invest in Irish andLuxembourg funds.
EXCHANGE OPERATIONSExchange operations, clearing and
settlement system integration play a majorrole in stock exchanges’ activity. In finan-cial operations by a settlement is meant anoperation when as soon as a deal is agreedupon and the buyer gets the object of thedeal (regardless of the essence of the mat-
ter, e.g. goods, stocks, etc.) whereas theseller receives the money. The clearingprocess is initiated after an agreement isreached between the trading parties. Thesetwo notions are extremely important inthe securities field because they form thebackground of the whole financial systemand provide reliability to the financialmarket. Any draw-backs in clearing andsettlements can greatly reduce financialmarket efficiency.
The EU financial activities in securi-ties market are quite fragmented in settle-ments and clearings mainly because ofnational specific practices and actualadoption of euro by less then half of theUnion, i.e. 12 EU member states.Although London, Frankfurt and Parishave been traditionally three major finan-cial centers in Europe, on the other hand,there are about 20 stock exchanges in theUnion with different rules and technicaloperating systems. Some operates in sev-eral countries, like Euronext Group whichoperates in Belgium, France, theNetherlands, Portugal and the UK, othersin just a few, e.g. Deutsche Bourse Groupwhich operates in Austria, Luxembourgand Germany. The OMHEX Group repre-sents the merger of Swedish OM andFinnish HEX which entered into force on4 September 2003. Hence, improvement incross-border operations is regarded as themost important step in the EU financialservices’ integration.
Such improvement presently occursmainly through mergers. Thus, inScandinavian region the former HEX becamepart of the Swedish OMHEX Group withshares traded publicly on both Helsinki andStockholm stock exchanges.All Scandinaviancountries have united their stock exchangebusiness units into Norex system.
The OMHEX Groups’ aim is to createfully integrated and single securities marketsand exchange in the Nordic countries and theBaltic region. In the beginning of 2004 itsmarket capitalization reached 420 billioneuro with about 70,000 trades made on adaily basis. Since the end of 2004 a commontrading system was installed operational in allNordic and Baltic securities exchanges.
As soon as integration in the internalmarket requires harmonization in trading,clearing and settlement systems, so does thecorresponding regulatory framework.
EU REGULATORY MEASURESThere are quite a few EU measures
(9, in total) concerning exchange opera-tions, clearing and settlement activities.More than 40 years since the Com-
munities’ creation, it is still lacking ade-quate and final regulations on securitiesclearing and settlements.
Although coordinating efforts ontransferable securities offered to the publicwere, in fact, the initial steps in theexchange operations, the first EU meas-ures in securities trade liberalization havebeen taken just a decade ago. In 1996 twoEU directives adopted in 1993 entered intoforce, the first one (COM 93/22/EC) gaveauthorized investment firms the right tooperate in all EU member states once ithad a valid member states autho-rization/license, commonly called “Euro-pean passport”. The second directive (COM93/6/EC) established minimum initial capi-tal for establishing an investment firm, andlaid down conditions for acquiring suchEuropean passport.
Next step in regulatory path was thefamous Financial Services Action Planadopted by the European Commission in1999. The plan’s main objectives were toestablish common legal framework for inte-grated securities and derivatives markets, tocreate single market for investments and toeliminate risks in clearing and settlements.
TOWARDS A SINGLE CAPITAL MARKETRecent Deutsche Bourse (DB) bid
for London Stock Exchange has aroused alot of speculations on the future ofexchanges playing field. One thing has tobe really clear, i.e. this bid is not simply acommercial deal or move. As to clearingand settlement business, the DB is thelargest in Europe. The debate between thetwo goes beyond the competition in the EUin trading shares; it’s about the future of theEuropean capital market with a single andunified securities market which enablescapital to move cheaply and efficiently inthe region. Probably, the greatest disadvan-tage for the ideal Pan-European capitalmarket is the existence of a series ofnational bourses, many of which have theirown clearing and settlement providers. Assoon as existing system looks efficient forsecurities traded between investors in theEU, cross-border trading between themwould remain expensive. The EuropeanCommission has already estimated thatcross-border trading is about five-six timesmore expensive than domestic trades. TheEU Ecofin ministers promised to discuss alllegal and practical obstacles on the way toconsolidated capital market creation inEurope and publish a final report. The onlything left is to wait for more adequate mar-ket assessment and control. But that is thetheme of our fourth and last article. •
The event was organized by theBelarus embassy in Latvia together withPROSPERO Public Relations and sup-port from Latvian Economics Ministryand Latvian Association of CommercialBanks. Among supporters of the forumhas been Parex Bank, one of the largestbanks in the Baltics. The forum gatheredover 120 representatives from state insti-tutions and business circles. For two daysparticipants discussed expanding coop-eration opportunities; business compani-es’ presentations and constructive duolo-gues among businessmen people havebeen held.
CONSIDERING GEOPOLITICAL REALITIES
Both parties agreed that relationsbetween Latvia and Belarus have been de-veloping quite well and dynamically.
“Contrary to certain predictions, theEU membership has not made Latvia lessattractive as to perspectives of developingeconomic cooperation with Belarus”, saidValerij Dovgan, Belarus Charge d’Affairsad interim in Latvia. “On the contrary, thenew geopolitical reality in the region faci-litates more active bilateral trade and eco-nomic cooperation, encourages the pro-cess of finding new niches with unused po-tentials, raising to a qualitatively new level
the priority and strategic importance of aconstructive dialogue between the twocountries”, he added.
“Latvian export to Belarus increas-ed 2.5 times since Latvia joined the EU”,said Latvian Economics Ministry’s statesecretary Kaspars Gerhards. “During thesame period Belarus import has grown ne-arly six times. And the dynamics of econo-mic relations between our countries rema-ins positive. The turnover of goods rose60% in the first half of 2005 and reached200 million US dollars.”
GATE TO EUROPEBelarus Economics Minister Nikolai
Zaichenko in interview to BC underlinedthat for Belarus Latvia “is not just a tradepartner, it is an important transport corridor.”
At present 88% of Belarus cargos(mostly oil products and mineral fertiliz-ers) are being sent to the West throughLatvian ports. All in all, Belarus foreigntrade shipments make up for 25-27% oftotal cargo turnover at Latvian ports and36.6 percent of cargo turnover in Latvianstate-owned railway company Latvijasdzelzcels.
Belneftekhim concern’s representati-ve in the Baltic States, Vitaly Kalugin, toldBC that “the main factor making Latviaattractive to Belarus is based on its natural
geographical advantages, i.e. one of theshortest transit routes to the Baltic Sea us-ed by most national exporters runsthrough Latvia”. He noted growing coop-eration between Latvia’s Ventspils and Ri-ga ports and Belarus exporters “for whomLatvia has been and remains the main ga-te to Europe”. “I hope that economic tiesbetween our countries will only growstronger with each year”, Kalugin said.
Joint projects are being carried out intransit transport, too. In particular, Zaichen-ko gave green light to a new six-car passen-ger diesel train, DR1B-type. The train wasbuilt at the Rigas Vagonbuves Rupnica(RVR) rail car plant in Riga, Latvian capitalby the contract from Belarus Railway Com-pany and meets all the EU, Russian andBelarus quality and safety standards. It isthe first train of this kind made by RVR inlast four years. It took just ten months todesign and produce the new DR1B-type di-esel train. RVR factory has the capacity tobuild up to 20 such trains a year. “Accordingto the cooperation program, it is planned tobuild for the Belarus railway in 2005-2009various diesel trains, including fast trainsthat can develop speed of up to 140 km/h”,Zaichenko said.
But economic relations between thetwo countries may change dramatically infuture as Latvijas dzelzcels intends to rai-se freight rates by 20-26% from January 1,2006. In this case Belarus businessmen willcalculate whether it is better for them to
50
CISInvestment Forum www.baltkurs.com
Latvia and Belarus: Cooperation ProspectsBy Anzhela Rzhishcheva By Mikhail Tuzhikov
The Belarus�Latvian investment forum that took place in the Latvian sea�sideresort Jurmala in late November last year identified main spheres for cooperationbetween the two countries — transit, trade, wood�processing, innovation and hightechnologies as well as joint implementation of investment projects.
VALERIJ DOVGAN: New geopolitical reality in the region helps to facilitate bilateral tradeand economic cooperation.
51The Baltic Course — Winter 2006 Investment Forum www.baltkurs.com
use transport route through Lithuania.Belarus Transport Ministry is involved incomplicated negotiations with Latvian Ra-ilway Company but does not lose hope toachieve a compromise on prices.
BUSINESS PROJECTSLatvia is an interesting partner to
Belarus not only as a transit route and out-let to the European markets. In particular,there is a particular interest in Latvia fromBelarus banks.
“We already cooperate with Latviancompanies engaged in manufacturing andtrade”, said Belinvestbank’s lending and in-vestment department director Galina Sa-dovskaya. “We are ready to help with anyproject implementation regardless of theparticipants’form of ownership”, she said.
Priorbank executive director Vladi-mir Kravchenko said: “The main objectiveof our bank is to assist foreign investors,who want to conduct business in Belarus.We have close cooperation with investorsfrom Western Europe, Russia and Lithua-nia. Foreign partners’ primary interests inBelarus include food industry, wood-proces-sing, fuel and energy industry, production ofconstruction materials, real estate and con-struction of shopping malls. I hope that thisforum will help us to draw Latvian busines-smen interests, too. It is important for usthat businessmen are aware of a bank inBelarus that works by Western standardsand is ready to carry out business projects”.
As to Belarus participation in Lat-vian commercial banks, Ludmila Vojevo-da, Regulation and Statistics Departmentdirector at Latvian Finance and CapitalMarket Commission, said: “Belarus bankassets have good potentials for growth.
Non-resident’s share in Belarus bank cre-dit and loan portfolio is just 0.4%, and0.8% for deposits”.
Latvian businessmen are also takingan increasingly active part in the economicactivity of the neighboring country. Deputyadministration head in Free EconomicZone (FEZ) “Minsk”, Vyacheslav Cherno-brovkin said that Latvian companies occu-pied fourth place by the rate of investmentsin 2004. “The FEZ project is an example ofreal target-oriented state support for priva-te business,” he said.“Businessmen are offe-red a special tax regime that provides for adouble reduction in total taxation amountfor a company-resident in the FEZ. Corpo-rate profit is exempt from taxation for fiveyears since first declaration, including the
first profitable year. There is also a specialcustoms regime. Thus at present FEZ“Minsk” offers Latvian businessmen an op-portunity to take part in several new invest-ment projects, e.g. “Minsk” national airportdevelopment, organization of transport andservice center “Prilesye”, environmentalproject for organizing a plant for utilizationof car tires and other rubber polymer-technology waste”.
Free Economic Zone (FEZ) “Vi-tebsk” also has good potentials for growth.Ilona Terletskaya, deputy head in the in-vestments and external economic relationsdepartment at the FEZ “Vitebsk”, said thatLatvian businessmen so far had not beensufficiently active there. “At the same time,working in the FEZ is a chance to try your
NIKOLAI ZAICHENKO: Latvia is not just a trade partner for Belarus, it is an importanttransport corridor.
GALINA SADOVSKAYA: We are ready to helpwith any project implementation regardless ofthe participants’ form of ownership.
VLADIMIR KRAVCHENKO: Our bank’s mainobjective of is to assist foreign investorswanting to do business in Belarus.
The Baltic Course — Winter 2006
hand while making use of tax and customsreliefs. It is a great opportunity for busi-ness people,” she added.
TOURISM INDUSTRYAccording to Belarus Confederation
of Industrialists and Entrepreneurs’ chair-man, Nikolai Streltsov exchange oftourists, regular human communicationand business trips between the two coun-tries has increased recently.
“Latvia has built a good infrastructurefor recreation industry on the Baltic Sea co-ast,” he said.“I think that with the help of ap-propriate advertising Belarus tourists whoprefer holidays on a sea beach, will reorienttheir long-standing priorities into vacationson the Baltic Sea. In its turn, Belarus hasadopted a national tourism developmentprogram, and we have something to offerLatvian people, as well. It should also be saidthat Latvian tourists, including young peo-ple, which is particularly important, can beseen more and more frequently at campingsites and vacation houses in Belarus, in par-ticular in Vitebsk region (next to Russianborder). Undoubtedly human contacts haveto develop further on alongside trade andeconomic relations”, Streltsov said.
“BRIDGES” FOR BUSINESSOn the eve of Belarus-Latvian invest-
ment forum, Latvian businessmen, politici-ans and public figures founded the Latvian-Belarus Economic Cooperation Society.
Among the Society’s founders weree.g. Oleg Stepanov (LSF Holdings), AlfredsCepanis (Eirokosultants), Alexander Golu-bov (Latvian parliament), Vadim Yeroshen-ko (LAIKA STARS, corporate finances),Valery Kanayev (Rietumu Banka), AndrisGutmanis (Latvian Transport Developmentand Education Association), NikolaiBashtovoi (Kalija Parks), Valery Pashuta(Ventspils Tirdzniecibas osta — VentspilsCargo Harbor), Edgars Jansons (LSF Hol-dings), Aleksei Vinichenko (Nitraco), Ingri-da Loza (Stockholm School of Economicsin Riga), Valery Godunov (LSF Trans), Ro-mans Grigs (Baltic Service), Vitaly Kalugin(Belneftekhim).
Society’s chairman Alfreds Cepanissaid that bilateral cooperation ideas had be-en supported by a number of ministries andagencies, city and district councils in Latvia.Latvian-Belarus Economic CooperationSociety’s main purpose was to initiate andcarry out joint bilateral economic projects,develop investment cooperation, provideorganizational assistance to businessmenand strengthen both countries’ position asimportant transit business partners. •
52 Investment Forum www.baltkurs.com
VERA SKVORTSOVA: Latvia is among sevenmajor foreign investors in Belarus.
AMONG TOP SEVEN “Latvia is an important trade
and business partner for Belarus,”said Vera Skvortsova, Counselor atBelarus Embassy in Latvia. “As ofJanuary 1, 2005, Latvia was amongseven major foreign investors inBelarus. There are 176 companiesworking in Belarus with participationof Latvian capital. There were regis-tered 52 companies in 2003 and 69companies in 2004, including 27 jointventures and 42 investment funds.That means that Latvian investors’activity in Belarus increased at thetime of Latvia’s accession to the EU”.
Total Latvian businessmen capi-tal share in registered organizationswith foreign investments in Belarusamounts to 21,25 million US dollars,including 10,8 million US dollars ofjoint investment and 10,5 million USdollars of foreign investment.
According to Latvian BusinessRegister made in September 2005there were 280 companies withBelarus capital totaling about 2 mil-lion lats working in Latvia.
A success story of a Belaruscompany working in Latvia would beBelpishcheprom concern. It wasfounded in late 2004 and began actualtrade in April 2005. The company hastaken a strong foothold in the Latvianmarket, offering high-quality foodand beverages which meet the EUstandards, including iodinated salt.
In general, main Belarus exportitems to Latvia are oil products, tim-ber, ferrous metals, tractors, fertilizers.In 2004 Belarus imported from Latviamostly fish, grain, cyclical carbohy-drates, pharmaceuticals and rail cars”.
ALEXANDER GAPONENKO: In Belarus we havehad fruitful discussions with local businessmenand secured Belarus government support.
POLITICAL LOYALTY IS NEEDED“I think that dynamic economic rela-
tions’ development between Latvia andBelarus is often obstructed by Latvianpoliticians’ political ambitions”, saidAlexander Gaponenko, Dr. econ, RussianBusinessmen Union in Latvia (RBUL),president.“Potassium fertilizers exported byBelarus would be a good example: previ-ously the stuff was reloaded at Latvia’sVentspils port. Now Belarus prefers to workthrough Kaliningrad port and avoiding tran-sit. The same is also true about significantreduction of Belarus timber deliveries.
Mr. A. Gaponenko continues: “AsLatvian SMEs have no direct influence onthe position of the Latvian government, wewent to Belarus where we met with localbusinessmen and managed to secure Belarusgovernment’s support. Our visit was gener-ally of great success. Latvian businessmenand RBUL-members obtained quite definitedevelopment proposals e.g. concerning con-struction and investment projects, polyethyl-ene supplies, public catering services, etc. Аcooperation agreement was signed with theBelarus Council of Ministers which wouldsignificantly facilitate our trade cooperation.
Regretfully, there are a number ofissues that require for their implementationpolitical will of Latvian government.In partic-ular, this refers to gasoline deliveries on favor-able terms which definitely can contribute torecovery of the Latvian economy in general.
And it’s true as well that without“political loyalty” from Latvian politi-cians the idea of Latvia serving as an eco-nomic bridge between Europe, Russiaand Asia will never come true. Such an“economic bridge” would be a seriousbreakthrough for Latvian economy. Nowit’s time for Latvian lawmakers torespond”, concluded Mr. A. Gaponenko.
During six years since its inaugura-tion, FEZ “Vitebsk” has registered 36 “resi-dential” investment projects. Even to-day 29investment projects with capital from 11countries are being carried out at the FEZ“Vitebsk” with the total amount of about 40mln US dollars of expected investments.Theamount of actual investments as of January1, 2006 was more than 39 mln US dollars,including 2 mln US dollars allocated andspent on the FEZ territory’s modernization(construction of a power transforming sta-tion and power supply lines, a motor road,water supply and sewer infrastructures).Residents in FEZ “Vitebsk” represent dif-ferent production and manufacturing sec-tors, as well as services. According to theshares in total production output these sec-tors are divided into the following groups:• fuel industry — 37%;• food industry — 25%;• mechanical engineering — 17%;• science and research — 10%;• light industry — 5%;• production of veterinary ingredients — 5%;• banking service — 1.2%;• chemical industry — 0.5%.
Some positive trends have emergedalongside FEZ “Vitebsk” organic growth;thus for example, export to Russia hasdeclined from 70% in 2004 to 43% in 2005;at the same time the share of exports to var-ious non-CIS and Western countriesincreased accordingly. This export re-orien-
tation can serve as a simple evidence thatgoods and products made by FEZ“Vitebsk’s” residents adequately meetinternational quality standards and are indemand on Western foreign markets.
The share of export operationsamong total FEZ “Vitebsk” residents’ activ-ities has reaches 84%. It is the highest rateamong all existing free economic zones inBelarus. Total average share of all free eco-nomic zones export in the country’s exportturnover equals presently to 53.2%.
Administration thinks that these pos-itive export facilities have been made possi-ble due to FEZ “Vitebsk” favorable geo-economic position being situated close tomajor industrial centers both in the BalticStates (Riga, Vilnius, Kaunas) and Russia(Moscow and St. Petersburg).
Well-developed transport infrastruc-ture makes FEZ “Vitebsk” an attractive ter-ritory for organizing production aimed forexports to Russian, Baltic and Scandinavianmarkets. Production and manufacturinglocated in the free economic zone canreduce corporate tax burden by 30-40% onaverage; return on investments can beachieved much sooner.
Any corporate entity with a variety oforganizational and legal forms can be regis-tered as residents in FEZ “Vitebsk”. Bothlocal and/or foreign corporate entities andindividuals can be constituent founders inthe economic zone. Relief from customs and
tax duties available in free economic zonecan be a rather attractive factor for foreigncapital inflow.
By locating production and manufac-turing in FEZ “Vitebsk” it is possible for acompany:• to cut production costs;• to increase competitive advantages;• to reduce return periods for investmentprojects;• to reduce the need for working capital dueto customs duties’ exemption when import-ing raw materials and resources, technologycomponents and/or equipments intoBelarus customs territory;• to move your production closer to salesmarkets.
FEZ “Vitebsk” can offer potentialinvestors both advantageous geo-economicposition of the region, tax and customsrelief, as well as highly qualified personnel,vacant industrial buildings, arable land andground for construction with access roadsand railway tracks.
FEZ “Vitebsk” administration invitesbusiness people to cooperation towards set-ting up the most competitive and diverseundertakings. •
FEZ “Vitebsk” Administration,Department of Investments and Foreign
Free Economic Zone (FEZ) “Vitebsk” is situated in one of the highly developedindustrial and cultural centers of the north eastern part in Belarus. FEZ “Vitebsk“legal background was the President of the Republic of Belarus decree No. 458 signedSeptember 4, 1999 for a period of 30 years. Leonid Ivanovich Shevchenko has beenin charge of FEZ “Vitebsk” administration from the day one.
FEZ “Vitebsk” Favorable Conditions: Guarantee for Success
THE BIGGEST LATVIAN COMPANIES Profit after taxes, 2004
Name Profit, LVLSIA Latvijas Mobilais Telefons 54 656 000AS Latvijas kugnieciba 37 796 988VAS Latvijas valsts mezi 33 824 444SIA Lattelekom 33 460 131SIA Tele2 25 816 327AS Latvenergo 24 681 084SIA Tele2 Holdings 20 965 439AS Latvijas Gaze 17 794 757KS Ventbunkers logistika k/s 17 439 459AS Ventspils nafta 14 778 000SIA Itera Latvija 14 115 294SIA LSF Holdings 10 997 253AS Ventbunkers 8 571 000AS VB Holdings 7 888 003AS Latvijas Naftas Tranzits 6 850 991
AS — Public Joint Stock Company, VAS — State Joint Stock Company,KS — Commandeer Company ,SIA — Joint Stock Limited Company.
Source: LURSOFT.
The Baltic Course — Winter 200654 Statistics www.baltkurs.com
CORRUPTION SUSCEPTIBILITYINDEX IN THE EUROPEAN UNION
Rank Country Indexrank*
2 Finland 9.64 Denmark 9.56 Sweden 9.210 Austria 8.711 Netherlands 8.612 UK 8.613 Luxemburg 8.516 Germany 8.218 France 7.519 Belgium 7.420 Ireland 7.423 Spain 7.025 Malta 6.626 Portugal 6.527 Estonia 6.431 Slovenia 6.137 Cyprus 5.740 Hungary 5.041 Italy 5.044 Lithuania 4.848 Czechia 4.349 Greece 4.350 Slovakia 4.351 Latvia 4.270 Poland 3.4
* Index rank in 2005: reflects corruption sus�ceptibility by businessmen and experts rank�ing from 10 points (practically non�existent)to 1 point (high corruption index).
Source: Transparency International.
LATVIAN COMPANIES: OVERALL TURNOVER AND PROFITS, IN LVL
GDP at current prices, mln EURQ3 2005 3312 5523 2761Q3 2004 2802 4825 2306GDP at constant prices, % to Q3 2005 111.4 107.6 110.6to Q3 2004 109.1 105.6 108.3GDP per capita, EUR2004 4777 5264 67022003 4262 4760 6012Source: The Central Statistical Bureau of Latvia.
WAGES, EURLatvia Lithuania Estonia
Monthly average, Q3 2005Gross wage 353.0 399.0 498.0% to Q3 2004 117.4 109.4 110.9Min. wage, January 2006 128.0 159.0 192.0% to January 2005 112.5 110.0 111.5Old�age pension, monthly average,Q4 2005
123.0 129.0 175.0
% to Q4 2004 111.9 110.9 118.9Source: The Central Statistical Bureau of Latvia.
FOREIGN TRADE, 2005, MLN EURLatvia Lithuania Estonia
Export (FOB):total 4086 9502 6213to EU�25 3114 6215 4831% of total 76 65 78Import (CIF):total 6879 12446 8192from EU�25 5160 7359 6229% of total 75 59 76Balance of foreign trade �2794 �2945 �1978Source: The Central Statistical Bureau of Latvia.
6352 12500
5438
19953
16936
41119
2009 83
76
7996 13000
6130
19970
18081
64747
2233
9485
Latvia
Lithuania
Estonia
Russia
Ukraine
Poland
Kazakhstan
Belarus
0
10000
20000
30000
40000
50000
60000
70000
20042005
1306
2355
261
1406
2263
252
Latvia Lithuania Estonia0
500
1000
1500
2000
2500
Q3 2005Q3 2004
60,04
27,89
46,74
57,4
27,48
46,37
Latvia Lithuania Estonia 0
10
20
30
40
50
60
70
20052004
Source: ASMAP.
NUMBER OF CARS ON INTERNATIONALHAULAGE ROAD TRANSPORT
Source: The Central Statistical Bureau of Latvia.
Source: LETA.
GENERAL GOVERNMENT DEBT, IN MLN EUR, AT THE END OF PERIOD
THE BALTIC PORTS' TURNOVER, IN MLN T
NUMBER OF NEW CARS IN THE BALTICS Latvia Lithuania Estonia
2005 69704 140606 606292004 57464 134551 47552Source: LETA.
FOREIGN DIRECT INVESTMENTSAt the end of quarter Latvia Lithuania Estonia FDI, stock, total, mln EURQ3 2005 3884 5278 10415Q3 2004 3135 4450 6580Per capita EURQ3 2005 1690 1548 7729Q3 2004 1357 1297 4870FDI, flows, mln EURQ3 2005 178 177 236Q3 2004 119 90 132% of GDPQ3 2005 5.3 3.2 8.5Q3 2004 4.3 1.9 5.1Source: The Central Statistical Bureau of Latvia.
